Mortgage Life Insurance

Is A policy that pays off the mortgage balance on an insured person's house in the event of their death is called mortgage life insurance. The main difference between mortgage insurance and term life insurance is that the lender is named the beneficiary, so proceeds must be used for the mortgage. With a term policy, the heirs can decide what to do.

Your lender will typically offer mortgage life insurance at the initial application stage. This offer is optional and does not affect loan approval. This works in the same way as other life insurance policies in that you make monthly payments (usually included in your monthly mortgage payment) to ensure that your home is paid off in the event that you pass away and that there are still outstanding balances. You can either cover the breadwinner or a joint policy to protect both borrowers.

Mortgage life insurance is not the same as mortgage insurance (PMI or MI). Mortgage insurance is a requirement from your lender if you do not have 20 percent or more equity or down payment in the mortgage transaction. Unlike mortgage life insurance, mortgage insurance is risk insurance that covers the lender for the top part of the loan in case of a borrower’s default. It has no benefit for the borrower. The borrower is required to pay for it as a condition of the loan.

Advantages

• Mortgage life insurance gives you the "peace of mind" that your mortgage loan will not be a burden on your loved ones.

• Acceptance into mortgage life insurance usually requires minimal to no health screening. This is a great option for those with pre-existing conditions, poor health, or the elderly.

• This is a way to make sure that your mortgage debt is paid. It's also beneficial if you don’t trust your heir’s judgment to assign this as a priority.

• It is a simple payment option. You don't need to send a separate payment if your mortgage life insurance is included in your monthly payment.

Disadvantages

• The mortgage life insurance policy is decreasing term insurance. This means that the coverage you receive decreases as you pay the mortgage. However, your term life insurance coverage remains constant and will continue to provide coverage.

• Term life insurance is different from mortgage life insurance. It offers the estate's heirs other options for the proceeds. It might be in the best interests of the heirs to repay high-interest credit cards and car loans instead of the mortgage.

• The insured's age is a factor in the life insurance rate. Refinances require you to apply for mortgage life insurance again. Your new rate will reflect your age.