Mortgage Life Insurance
One of the greatest accomplishments that people make in their adulthood is buying their dream home and getting away from the rent payments. When you get rid of those rent payments and buy a home, many more responsibilities arise. Such as, maintaining the lawn, repair of appliances if necessary, homeowners insurance, and mortgage protection insurance. This can make things a little stressful. In this article we will explain what mortgage protection insurance is and if it’s a good buy.
Once you bought your home, you probably received a mailer informing you that you qualified for a mortgage protection life insurance policy. This coverage is not common to many, and the chances are high that the mailer you received will be vague and not give any details about the policy and whether you need to take one or not.
What Is Mortgage Life Insurance?
Mortgage Life Insurance also known as mortgage payment protection insurance, and it is a deviation of traditional term life insurance. Depending on the particular policy you take, they also could cover instances where if you lose your job and thus become unable to pay back the mortgage or if you get involved in an accident and become disabled. The concept behind this policy is to protect your family members from the burden of paying back your mortgage when you are unable to or when you pass away.
This concept is somehow similar to a policy called credit life insurance. This policy helps to cover your personal loans and credit card payments if you pass away or lose your job. The only difference is that the policy covers the mentioned forms of credit and not mortgage payments.
Keep in mind that the cost of this policy will vary from one person to another since it is calculated based on several factors. The common ones include your age, how you make the payments and the value of the loan among others. These types of policies are a deviation of life insurance.
Mortgage Life Insurance vs Regular Life Insurance
Premiums that are determined by age and amount of mortgage, is why mortgage life insurance is life insurance, with some glaring differences. With the mortgage life insurance, the lender is the policyholder and the beneficiary while you are the insured.
This is different from a traditional term life insurance policy. With a term life policy you are the owner, beneficiary and insured.
How Does Mortgage Life Insurance Work?
This policy is designed as a decreasing life insurance policy that offers a death benefit which reduces at a specific rate over the entire policy period. The rate at which the benefit owed to the lender reduces to sync with the remaining mortgage owed. Keep in mind that the premiums are always fixed and only the value of the death benefit decrease throughout the repayment period.
With a traditional term life policy, the death benefit remains level for the entirety of the term period chosen.
Advantages of Mortgage Life Insurance
The main advantage of mortgage protection insurance is that if your health condition is not the best and your job is risky, you can still qualify for one of these policies. Mortgage protection insurance is a no medical and usually approved instantly.
Term life insurance is going to require evidence of insurabililty before being able to qualify. This could be a problem for some homeowners with preexisting conditions.
Disadvantages of Mortgage Life Insurance
One major flaw with this policy is with the premium payment. When you take this policy, the premium amount will be calculated based on the value of the loan. However, the loan amount reduces with time, and in fairness, the premium should also reduce as well, but this is not the case. The premium remains constant throughout the period while the value of the policy reduces significantly over time.
Another flaw with the policy is that unlike life insurance, your loved ones are not the beneficiaries of this policy. While it is true that your loved ones will be protected from the financial burden if you pass away, it would be better if they were in control of how the proceeds were spent. Mortgage protection insurance won’t contribute towards burial costs, college fees and lost income among others.
Lastly, the policy uses the concept of a term life insurance policy in that it operates for a fixed time. The most common timelines for mortgages are fifteen to thirty years, and these options may not be available to you when you reach a specific age.
Is Mortgage Protection Insurance Right for Me?
Now we get to the most challenging part, and it is deciding whether you need the mortgage protection life insurance policy or not. The internet has several pieces where you will see people discouraging others from getting this policy due to the reasons state above.
Most professionals discourage from taking up coverage’s that only cater for one thing such as the mortgage protection. This is because they are often overpriced, and their are cheaper alternatives available.
While these pieces have have good points, it is important to have life insurance to cover your mortgage in the event you die prematurely. So, if you can’t qualify for a traditional life insurance policy then mortgage protection insurance has its value.
It’s is always recommended to work with an experienced life insurance agent who can review your situation and find what fits your situation best. If you have any questions you can give us a call or if you would like quotes, check out our instant quoter here.