Featured Image Caption: Mortgage Life Insurance
Buying a new home is one of the biggest purchases you will make in your life. While it may be exciting, it also needs a lot of consideration and planning. One of the decisions you will have to make is if you should opt for mortgage life insurance.
The policy is also known as mortgage protection insurance and is designed to pay off your debt if you die. This policy is great at ensuring your family doesn’t lose their home after your passing. It ensures that your debt is paid off in this unfortunate circumstance.
While mortgage life insurance has its benefits, it also comes with certain drawbacks. This is why you must have a clear understanding of what this policy entails before making a purchasing decision.
How Mortgage Life Insurance Works
Mortgage life insurance only becomes an option either right when you buy a home or a short while after you purchased your home. The length of the policy will be the same as the number of years you have to pay your mortgage. These policies are usually sold by a mortgage lender or an insurance company that is affiliated with the lender. If you opt for going with your lender, your premium payments can be bundled into your loan.
When you opt for this policy, the mortgage lender is chosen as the beneficiary. You are unable to pick your spouse or any other family member you may want. This means that if the policy matures, the payout is directly delivered to the mortgage lender to settle your debt. This type of policy does not allow for any monetary benefits for your family directly.
Can I Get Mortgage Life Insurance with My Spouse?
Yes, you have the option to extend coverage to two borrowers under one mortgage life insurance plan. The way this works is pretty simple. If one of the borrowers passes away, the coverage of the policy extends to the other person. If both borrowers pass away at the same time, the policy matures and your mortgage lender receives the payout.
Are There Exclusions?
There are a few exclusions that could void the benefits of your policy. One of these is if the borrower passes away due to suicide. Most policies state that if the person’s death was due to suicide within at least the first 2 years of the policy, their benefits are canceled. This is a common clause that is added to all kinds of life insurance policies.
Advantages of Mortgage Life Insurance
The biggest advantage of having mortgage life insurance is the peace of mind it brings for your family. Knowing that their home will be safe if something unexpected was to befall you is massive. This is especially true if you are the primary breadwinner in the family. The loss of a home is one of the biggest setbacks families face when the primary provider passes away.
The policy also provides significant stress relief for the borrower. Knowing that their loved ones will have a roof to stay under if they pass away can improve their quality of life. It is important to mention other policies can also provide the same stress relief. Term life insurance is one big example of policies that work similarly.
Term life insurance has the added benefit of flexibility that mortgage life insurance may not have. This includes allowing your family to decide how they use the payout. You may also use term life insurance to match the amount of your coverage and policy length to that of your mortgage. Additionally, you can also add other financial factors such as your children’s tuition costs and annual income.
Some other advantages of a mortgage life insurance policy include:
No Life Insurance Medical Exam
Subscribing to a mortgage life insurance policy does not usually require you to take a medical exam. It may question your health at all. This is useful for people who have health conditions that prevent them from picking other options.
The policy may also give you the option to include insurance riders in the plan. These include:
This can help you take money out of the death benefit if you get diagnosed with a terminal illness.
Return of Premium
This option can help you reclaim the premium payments you have made. This option only becomes available after a certain number of months.
Disadvantages of Mortgage Insurance
Even though the policy comes with some attractive benefits, let’s also discuss some of the biggest downsides it entails.
Expensive for Individuals in Good Health
These policies do not take the health of the borrower into account. This could make them more expensive than other options. Especially for people who are in good health. Compared to term life insurance these policies tend to cost more. If your health is not a concern you may find a better deal in a term life insurance policy.
The payout of this policy usually stays the same as the balance of your mortgage. Even though your mortgage may be getting lower, the premiums you will pay on the policy will remain the same.
While there are some obvious benefits to getting a mortgage life insurance, it comes with considerable cons as well. The policy is probably your best option if you are in poor health and other options are out of your budget.
By Greg Rozdeba
who is Co-founder and President of Dundas Life, a digital life insurance brokerage that makes it easy and affordable to get life insurance online. He’s been a licensed insurance advisor and lifelong investor since the age of 15.
Member since September, 2021
View all the articles of Greg Rozdeba.