You often see an offer for mortgage life insurance when you sign your mortgage paperwork. In fact, you may have to sign several forms if you choose not to purchase it. The main reason lenders stress the importance of mortgage insurance at signing is because it benefits the lender by ensuring the loan is paid should you pass away. Mortgage insurance would pay off the mortgage entirely if you die. In some cases, mortgage insurance is the best choice. In most cases, however, a normal term life insurance policy will provide the same protection at a lower cost.
Mortgage Life Insurance is More Expensive
At the onset of the policy, the premiums you pay for a mortgage life insurance might be similar to the premiums you would pay for a term life insurance policy. As time goes on, however, your mortgage premiums will remain the same while the payout amount will decrease. This is how mortgage life insurance companies can afford to charge the same rates as term life without requiring a medical exam. However, this means that the premium to benefit ratio for term life insurance is much less. Since a mortgage insurance policy only pays for your mortgage, the amount that it will pay out decreases as you continue to make mortgage payments.
Term Life Insurance Offers More Flexibility
Aside from cost, one of the biggest differences between a traditional term life policy and a mortgage life policy is that mortgage insurance offers your dependents no control over the benefits. The insurance company pays the bank holding the mortgage directly. The benefit to your heirs is that the policy pays off the house and stairlift prices the burden of ongoing mortgage payments. If your dependents aren’t interested in holding onto the house, however, this type of insurance isn’t much help. Your dependents will still have to sell the house to gain the economic benefit. A term life insurance policy allows the beneficiaries to spend the money in any way they desire.
Choose Mortgage Life When you Can’t Qualify for Term Life
The best time to choose mortgage life insurance over term life insurance is when you are unable to qualify for a traditional term life policy because of poor health. Mortgage life insurance does not require you to pass a physical or a blood test, so people in ill health generally find better rates with mortgage coverage. If you are unable to purchase traditional term life insurance, mortgage life insurance is an option that will provide at least some financial protection for your dependents.
However, if you can qualify for a term life policy you will receive a higher payout for a lower cost. Term life payouts go directly to your listed beneficiaries so that they can make decisions about how to use the money. Term life is typically a better choice than mortgage life because it makes better financial sense for you and for your dependents.
That doesn’t mean you should run out and buy a term life insurance policy right now for the value of your mortgage. It will depend on your situation. Could you continue paying the mortgage if your spouse passed away? Could your spouse pay if you died? If not, then you should be thinking about life insurance. However, if each of you can afford the mortgage payments individually, and you have little debt, you may not need life insurance at all.