Mortgage Life Insurance
Mortgage life insurance can be complicated with all its terminology and variations, not to mention the other types of life insurance available and their pros and cons to evaluate. There are life insurance policies for adults and children; there are life insurance policies for short periods of time and an entire lifetime; and there are even life insurance policies that come with an interest-earning cash savings account. However, in the tough financial times that many people are going through today, there is another variation of life insurance that is gaining popularity: mortgage life insurance.
What Is Mortgage Life Insurance?
In simplest terms, mortgage life insurance guarantees that if a policyholder passes away while under the coverage, their mortgage will get paid off. A home is one of the single largest purchases that most people will ever make in their lifetime, and also one of the most important. Mortgage life insurance can ensure that the loved ones left behind are financially cared for after the policyholder’s death. Not only will they be able to keep their home, but they will also have the peace of mind that comes with a fully paid mortgage.
How Mortgage Life Insurance Works
Mortgage life insurance works to ensure that if a policyholder passes away, a sum of money sufficient to pay off their mortgage will be paid out by the insurance company. Some of the stipulations of mortgage life insurance include the fact that the coverage amount has to equal the outstanding mortgage debt, and the date of termination on the policy has to match the date of final payment on the mortgage. The insurer is responsible for calculating the rates at which the coverage must decrease to match the value of the outstanding debt.
Mortgage Life Insurance vs. Mortgage Protection Insurance
Many people make the common mistake of confusing the terms mortgage life insurance and mortgage protection insurance. However, the two are actually very different. Mortgage protection insurance is not strictly life insurance, and in many cases, lenders may require home buyers to purchase it before obtaining a mortgage. The purpose of mortgage protection insurance is to protect the lender, but the purpose of mortgage life insurance is to protect you and your family, so it is important to note the clear distinction between the two types.
Obtaining A Mortgage Life Insurance Policy
Most home buyers, during the process of filling out the loan paperwork for the mortgage, will be offered the chance to purchase mortgage life insurance at that time. Home buyers can of course refuse the insurance at that time. However, there will be a number of waivers to sign in order to verify the denial of coverage at that time. This is to show an understanding of the risks involved in taking out a mortgage, including passing away before it is paid. Mortgage life insurance can also be purchased privately by homeowners.
Pros of Mortgage Life Insurance
Every type of life insurance comes with a list of pros and cons, and mortgage life insurance is no exception. One of its most notable advantages is the peace of mind it provides a policyholder and his or her family. With the knowledge that the mortgage will be paid for after your death, a weight is lifted that can allow you to better enjoy life. Another distinct advantage is the minimal underwriting involved in the application process. In most cases, mortgage life insurance applicants can obtain the coverage without undergoing a medical examination.
Cons of Mortgage Life Insurance
Unfortunately, there are just as many disadvantages when it comes to mortgage life insurance. For example, a mortgage life insurance policy decreases in benefits. The premium payments stay at a fixed rate, but the benefits are decreased as needed to match the mortgage demands. Secondly, unlike regular life insurance policies, a mortgage insurance benefit does not provide any financial help to the beneficiaries at all, other than paying off the mortgage. Another, different type of policy would be needed in order to get any extra benefits.
Who Should Consider Mortgage Life Insurance?
As with most types of policies, a mortgage life insurance policy could benefit some people more than others. Some of the deciding factors include the amount of the outstanding loan, the value of your home and assets, and the current state of your health. Since the medical underwriting in mortgage life insurance is minimal, this type of policy is ideal for anyone who wants to make sure their home gets paid for upon their death, but is unable to get any other kinds of life insurance coverage due to age or pre-existing medical conditions.
Compare Life Insurance Quotes Online
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