It’s often said that you can’t have too much protection.
Personally, I think the person that said that had never been introduced to mortgage life insurance.
While your house is most likely your biggest asset, does that justify paying the extra premiums to have a mortgage life policy? Sure, your house is your most important possession. It’s where you have all your meals and have shared countless memories with your family. You want to protect your family from having any additional struggles because of your precious home, but that doesn’t mean you need to pay more money than you should. So, do these mortgage life insurance policies give you affordable coverage for your spouse and children?
Does the added cost really give you the protection you need?
The obvious solution is to just buy cheap term life insurance, right? No one wants to stick their beneficiaries with the tough decision of paying off an unsettled home loan or being forced to get rid of the home altogether.
The mortgage term life policy was created to prevent such an occurrence. But does that justify buying this specialized type of insurance or can a basic life insurance policy accomplish the same goal?
Stated another way, this is a term life policy built precisely for homeowners. If you pass away owing a large chunk to a mortgage lender, the claim from your policy will pay off the house in full.
But the question remains, “Is mortgage life insurance really the best way to go?”. Let’s take a look…
Pros and Cons of Mortgage Life Insurance
On the plus side, you are paying (relatively) little for a lot of potential mortgage protection, which could be useful if your heirs are in no financial shape to make mortgage payments. It would be detrimental to your survivors if they had to suddenly take on loads of mortgage debt when they themselves are in no financial shape to bear that burden. On the negative side, term insurance is term insurance. If you live past the term of your mortgage term life policy, no benefit will be forthcoming for all those premiums. It’s important that you have a plan that would last long enough so your family is protected for life.
You don’t find many fans of mortgage term life insurance in the mortgage industry. Their argument is that a regular life insurance policy might do the job just as well, and give your heirs more flexibility besides. Still, quite a few homeowners want mortgage term life insurance and appreciate its designated purpose.
Basic types. The cheapest type of mortgage term life is the level premium/level benefit policy. You can commonly purchase them with 20-, 25- or 30-year terms. As the name implies, the premiums are guaranteed to stay level for the entire policy term, and the benefit amount does not decline with time.
You can still find the original kind of mortgage term life policy, in which your premiums stay level but your coverage shrinks as your mortgage balance diminishes. While some banks and insurers still offer these “old school” policies, they are getting scarce.
Alternatives to Mortgage Life Insurance Protection
Some homeowners decide to get a return-of-premium term life policy instead of a mortgage term life policy. With an ROP term policy, the insurance company will give you all of your premiums back if you outlive the term (provided, of course, that you’ve kept your policy in force). Someone with 20 years left on a home loan could get a 20-year ROP term policy for an amount comparable to their mortgage balance and get all the money paid into the policy back without a tax consequence if they are alive two decades later.1 That money could be used for any need or objective.
Don’t Confuse Mortgage Life Insurance with PMI
So how is this different than private mortgage insurance? Well, PMI isn’t about protecting you at all – it’s about protecting the lender in case you default on your home loan. It diversifies that risk to a third party.
Should you look into these options? You might be in a situation in which you really don’t want to risk burdening your heirs with an existing mortgage – especially if they are trying to pay off one themselves. Or, maybe you want a more flexible insurance option that could be used to pay off a mortgage or meet other needs.
Before you decide which type of plan you’re going to buy, sit down and add up all of your debt, it could include more debt other than your mortgage. You might find that even without your mortgage, your estate has thousands and thousands of dollars of debt. If you have a mortgage life insurance plan, that policy payout isn’t going to help your family with those other debts. This is why, in most cases, getting a traditional life insurance policy, either term or whole, is a better investment for you and your family.
There is one situation where mortgage life insurance works best, and that’s if you have any severe health complications. If you have any high-risk health problems that would cause your monthly premiums to go through the roof, or be denied coverage, these mortgage life insurance plans can be a great alternative that won’t break your bank.
In most cases, you can get a simple term life insurance policy that will do the exact same thing, but give your loved ones the ability to use the money as they need. There could be dozens of other needs that they have. Additionally, a term life insurance plan is more affordable than most applicants think. If you don’t like your mortgage life insurance options, you could always apply for a term plan that matches the length of your mortgage loan.
Getting Affordable Insurance Coverage
Whichever type of policy you choose, you’re going to want to get the least expensive policy that you can. We’ve compiled some information to show you how easy getting affordable coverage can be.
If you decide to go with a policy that has medical underwriting, like a term life insurance policy, it’s important that your health is as good as possible. With traditional policies, you start with the paperwork and then you’ll be subjected to a medical exam given by a local nurse who will come to you. Once the company gets the results it could change your quoted premium.
Improving your health before applying for life insurance is always nets a positive result. Since the med exam will check your basic pressure levels and blood work getting those vitals into normal range will definitely help your chances of lowering that premium.
Additionally, if you want the cheapest coverage through a life insurance policy, you need to kick the cigarettes. If you want the most affordable policy that would give your family the funds to pay off your mortgage, smoking is one of the worst things you can do. If you’re a smoker and you apply to get a medically underwritten policy instead of a mortgage life insurance, you will be paying AT LEAST double what a non-smoker will. In some cases you could be triple.
Lastly, if you want to get a life insurance policy and want to ensure you’re getting the lowest rates possible, work with an independent agent. Ours that work at Life Insurance by Jeff, represent dozens of highly rated insurance companies. Our independent agents are extremely knowledgeable about the insurance marketplace, they can help you find the perfect insurance company to get you the rest rates on your insurance policy.
Every year, we hear countless stories about families that lost a family member unexpectedly. While they were going through the grief of losing their loved ones, they found themselves struggling to pay for mortgage payments that were left behind. Regardless of which type of policy that you choose, it’s important that you have SOME TYPE of coverage. Tragic accidents happen and, your loved ones would be left with your mortgage payment and would be forced to find a way to make those payments without your income. Don’t leave your family under serious financial strain.
If you have any questions about mortgage life insurance, or you need help deciding which type of policy works best for you, feel free to contact us at any time. Our agents understand the importance of making educated decisions when it comes to your life insurance.
Additionally, if you want to find the lowest rates for term life insurance, fill out the quote form on the side and all of the best quotes in your area will come directly to you. No hassle. No fuss. Just low quotes tailored to your situation.