Should You Get Mortgage Life Insurance?
(Three minute read time)
Thinking about life insurance can be daunting, but it’s an important topic that needs to be addressed sooner rather than later, so your family can be taken care of after you are gone. There are various life insurance options out there, but one you may not be aware of is mortgage life insurance. Here is a brief rundown of what it is and how it differs from regular life insurance.
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What is Mortgage Life Insurance?
Mortgage life insurance is a term life policy designed with the sole purpose of repaying mortgage debt and any other associated costs in the event of the death of the policyholder. It’s a valuable tool to ensure that the remaining loans on your home aren’t put onto the policy holder’s beneficiaries.
There are two main types of mortgage life insurance – decreasing term insurance and level term insurance. Decreasing term insurance sees the policy’s size decrease with the mortgage’s outstanding balance until both numbers reach zero. With level term insurance, the size of the policy does not decrease. Level term insurance is a popular choice for borrowers who have an interest-only mortgage.
What Are the Differences Between Mortgage Life Insurance vs Regular Life Insurance?
Although regular life insurance and mortgage life insurance seem similar, there are several differences between the two options that must be known before deciding which one to choose. Here are a few of the differences between the two types of life insurance:
Regular Life Insurance
If you sign up for term life insurance, you can buy the right amount of coverage to meet your family’s needs. Most people who have term life insurance try to have the coverage match or closely meet the insured person’s income and also cover expenses like tuition and other loans.
You have more flexibility regarding who the money goes to with regular life insurance. This also grants the beneficiaries the ability to use the money however they see fit.
Term life insurance can last anywhere from five to 30 years. You can choose a plan that better suits your long-term financial obligations, such as putting money aside for college or setting up funds for your grandchildren when they become adults.
Standard life insurance is usually more affordable than mortgage life insurance, so you get more bang for your buck, especially if you’re a healthy adult.
Mortgage Life Insurance
The sole reason to have mortgage life insurance is so your beneficiaries can pay off the debt associated with your mortgage. For this reason, the funds can’t be used for other purposes.
Most mortgage life policies involve the death benefit decreasing as it begins to match the mortgage balance, whereas a term life insurance benefit stays the same.
For some mortgage life policies, the funds are paid right to the lender and not the family.
Unlike a term life insurance policy that can last decades, mortgage life insurance coincides with the length of the home loan. Also, some mortgage life policies come to an end if you refinance your home.
Although you won’t have to go through a medical exam as with some term life insurance policies, you will be charged for this convenience, as you will typically have to pay more for your coverage with mortgage life insurance.
Only you can decide what financial coverage and insurance policy best suits your financial situation, but we can work with you to educate you so you can make the right choice for your unique situation. Contact the dedicated and knowledgeable team at WealthTrack today with any mortgage-related questions you may have and let us help you feel secure with your mortgage.
