Mortgage Protection or Mortgage Life Insurance is a version of term life insurance; it is insurance that pays off your home loan if you pass away. This type of policy usually lasts for the same term of time as your loan.
Purchasing a house is a sizable financial responsibility. Typically a mortgage loan is a 30 year commitment. What would transpire if you pass away and couldn’t make the payment?
Mortgage protection insurance prevents foreclosure if you were to die while you owe money on your home loan.
Financial Burden or Peace of Mind
Until your house is paid off, there is a significant financial risk looming. If you can’t make the monthly payments, for example, the lender could foreclose on the mortgage forcing your family out of your home.
This is why many homeowners enter a mortgage with someone else – like a spouse or partner. This person can limit the financial risk of buying a home.
But what happens if you were to die unexpectedly? Your co-borrower or family would be left with that financial burden.
This is where Mortgage Protection offers peace of mind. The policy could pay off the loan all together or help your spouse/partner/family make the monthly payments.
Isn’t this just like PMI?
No, Mortgage Protection Insurance IS NOT the same as private mortgage insurance. Private Mortgage Insurance is protection for your lender. Some borrowers think that (PMI) will pay off their mortgage when they pass away. This is not true.
The mortgage lender usually requires 20% down to eliminate PMI. Otherwise, it would generally be required on a loan.
Mortgage Protection Advantages
Quick Approval. Mortgage protection insurance is fairly easy to purchase. These policies are considered simplified issue and can be approved quickly.
No Medical Exam. Generally there is no medical exam. These types of policies are more accepting of pre-existing medical conditions and illnesses
Easy Add-On. Mortgage protection insurance could be a valuable supplement to the life insurance coverage you may already have in place. With high approval rates, this is a simple way to add coverage for your family.
Mortgage Protection Disadvantages
Simplified Issue. Coverage may be more expensive for folks in excellent health. Since there is no medical exam the underwriting steps are less accurate. This means the rates will be more expensive as compared to term life insurance that is fully underwritten.
Length of Term. The term of coverage is the length of your mortgage. Once the term is over the policy ends.
Coverage Decreases. There is a reduction in coverage as you pay down your principal loan amount. The coverage amount is always in line with the mortgage balance.
Beneficiary Choice. The Death benefit (payout) is usually sent directly to the mortgage lender.
If you are in a high risk career field or if you have health conditions that make life insurance difficult to get, mortgage protection insurance may be a good fit for you. It’s a type of term life insurance policy. If you pass away during that term, the insurance company pays the death benefit directly to the lender. If you out live your policy term, hopefully your house is paid off at that point.
Here at Life Choice Advisors, we recommend a no obligation ‘needs assessment’ with one of our brokers. We can assist you in person or on the phone in comparing the best options available.