Mortgage Life Insurance

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What is mortgage life insurance?
Mortgage life insurance is a form of insurance designed to pay off the remaining mortgage debt of the insured if the policyholder dies during the time of coverage.

The advantages of mortgage life insurance include:

• Straightforward coverage with an immediate benefit
• No medical exam is required
• Easy to get approved for mortgage life insurance
• Terminal illness and incurable disease benefits are typically included
• Gives the policyholder absolute control of benefit usage, because funds are paid directly to the mortgage lender

Advantages of mortgage life insurance
As we’ve discussed, at your family’s most critical time in their life a mortgage life insurance policy will completely pay the remaining balance on your home, giving your family a huge boost in their daily cost of living. Considering that most mortgages are at least 20% of the household income, that is a huge benefit that continues to offer convenience going forward.

Other than the peace of mind that a mortgage free lifestyle can bring, another item of consideration is that mortgage life insurance is considerably easier to obtain than other forms of life insurance. Because of the minimal underwriting in a mortgage life insurance policy there is often no medical examination required at the initiation of the plan.

Terminal illness and incurable disease clauses are also a part of most mortgage life insurance policies. These features void the stipulation that the benefits are only paid once the policyholder has passed away.

Why does anyone need mortgage life insurance?
Homeowners are likely to owe more on their mortgage than their house is actually worth, therefore upon the death of your family’s main source of income the survivors will have little to no equity in their house, they won’t be able to sell the home for a profit, nor is refinancing a possibility. A reduced level, or the complete loss of, income will make mortgage payments impossible to fulfill. A mortgage life insurance policy will provide a family with the luxury of a house paid in full.

At the time of a loved one’s unexpected death, the mortgage life insurance policy will pay out a capital sum that will completely cover the outstanding mortgage. Depending on your mortgage, getting out from under a monthly payment could free up as much as 30% of your family’s debt. Mortgages are typically 20% of one’s yearly earnings and the benefit of a wholly debt free house is exactly what a family needs during the devastating loss of a family member.

Is mortgage life insurance for everyone?
Anyone that has beneficiaries of any kind should have some form of life insurance. However, depending on your circumstances mortgage life insurance may not be the best solution for you. Let’s evaluate two aspects that could govern your family’s need for this particular type of life insurance.

Items of Consideration
Decreasing benefits
The mortgage life insurance benefit (or payout) decreases over time, but the premium is a fixed rate. In contrast, a term life insurance policy has both a fixed premium and a fixed payout.

Control of benefits
When a policy payout is executed, the money is paid directly to the mortgage lender, the bank. If the insured is looking to secure the mortgage debt using his or her life insurance, then this is a perfect solution. However, because the benefit is paid directly to the bank the family receives no advantage other than a house paid in full.

For example, if the mortgage, at the time when the benefit is presented, is no longer the greatest debt the surviving family has no way to control the funds, as they are paid directly to the bank. Term life insurance offers more control for the family members with a fixed benefit.

The Bottom Line
In the end, we do not recommend mortgage life insurance because it decreases over time and does not go to the beneficiaries.