A mortgage life insurance policy is an insurance policy designed specifically to repay mortgage debt in the event of the death of the borrower.
There are two basic types of mortgage life insurance: decreasing term insurance, where the size of the policy decreases with the outstanding balance of the mortgage until both reach zero; and level term insurance, where the size of the policy does not decrease. Level term insurance would be appropriate for a borrower with an interest-only mortgage.
Before buying mortgage life insurance, a potential policyholder should carefully examine and analyze the terms, costs and benefits of the policy. Remember, there are two lifespans to consider – the lifespan of the policy holder and the lifespan of the mortgage. It’s also important to investigate whether one could get the same level of coverage for your family at lower cost – and with fewer restrictions – by buying term life insurance.
Advantages of Mortgage Life Insurance
1. A mortgage-free home in the event of death, illness or disability that prevents work. With a mortgage life insurance policy in place, heirs won’t have to worry or wonder what might happen to the family home. If a policyholder dies or become gravely ill and unable to work, the mortgage life insurance policy will pay off the entire mortgage loan.
2. A policyholder doesn’t need to die to take advantage of coverage.Most mortgage life insurance policies, on the other hand, offer coverage which works if you become disabled or diagnosed critical illness, which makes this type of insurance a bit more versatile than a traditional term or whole life policies.
3. Policyholder peace of mind.This coverage relieves a policyholder’s worries about family having a place to live if you die or diagnosed critical illness. With the mortgage paid off, the family will always have a place to live, provided they can afford the property taxes and insurance each year.