Life Insurance 101 Is Mortgage Life Insurance Right for You

The purpose of life insurance is to protect your loved ones and make sure they are able to pay the bills in the event of your untimely death. For most families, the home mortgage is one of the biggest if not the biggest monthly expenses, so it seems reasonable to use life insurance coverage to pay off the family home.

As the name implies, mortgage life insurance is designed to protect homeowners and their families, and to help the loved ones left behind to make the monthly mortgage payments or pay the loan off.

Guaranteed Death Benefit

Like other forms of term life insurance, mortgage life insurance provides a guaranteed death benefit. The surviving family members are free to use that death benefit however they see fit to pay the monthly mortgage payment until the home is paid off, or to use the lump sum to pay the home off early.

One of the best things about mortgage life insurance is that homeowners can purchase just the amount of coverage they need. Those who are fifteen years into a 30-year mortgage can choose a 15-year term and pay for just the protection they need. By the end of that 15-year term the mortgage will be paid off either by the death benefit or through regular monthly payments. Workers who are just starting off can opt for a longer 30-year term to cover the entire time span of the mortgage.

Another unique feature of mortgage life insurance is the structure of the death benefit. When a homeowner takes out a new policy, the amount of insurance provided remains steady for a period of time generally five years. After that initial period, the amount of insurance decreases annually to account for the decline in the remaining mortgage balance. This allows homeowners to maintain sufficient coverage to pay off the family home without paying for more protection than they need.

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Assessing Your Needs

Mortgage life insurance is not the right choice for everyone, and it is important for you to assess your needs before signing up. In some cases, mortgage life insurance alone may not provide sufficient protection. After all, the monthly mortgage payment is probably not your family’s only expense. If you feel your spouse would need more money than the mortgage life insurance provides, it may be best to look at a traditional term life policy instead.

Mortgage life insurance may also not be the best choice for couples with young children. Those couples may want to look at a policy whose death benefit can be used to not only pay off the family home but help put the kids through school as well.

Even though mortgage life insurance is not the right choice for everyone, it is an intriguing product that serves a valuable niche. Those who want to make sure their loved ones will be able to stay in the family home can use this type of coverage and benefit greatly from the protection it provides.

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