Mortgage life insurance is a specialized type of term life insurance. Its sole purpose is to pay off a borrower’s outstanding mortgage and related charges in the case of the borrower’s death.
These plans are not the same as regular life insurance. The borrower’s family receives the death benefit from standard insurance when the insured dies. Although sometimes, the mortgage lender is the beneficiary of a mortgage life insurance policy.
The policy will not pay out unless the borrower passes away while the mortgage is still in effect. The policyholder also takes out a life insurance policy with the same term when a mortgage is taken out. The insurer often adjusts the death benefit annually to reflect the new amortized mortgage sum outstanding.
Understanding Mortgage Life Insurance
Two common types of mortgage life insurance are decreasing term insurance and level term insurance. Understanding mortgage life insurance comprises these types.
- Decreasing term insurance: Here, the face value of the policy gradually decreases in tandem with the mortgage’s principal balance.
- Level term insurance: Here, the face value of the policy remains constant throughout the life of the policy. An interest-only mortgage borrower would benefit from level term insurance.
A prospective policyholder needing mortgage life insurance should research the policy’s terms, price, and advantages before making a purchase. Keep in mind that you must take into account not only the policyholder’s but also the mortgage’s lifespan.
What You Need to Know
A mortgage life insurance policy offers almost universal coverage with simple underwriting. Any homeowner with a major prior condition and thus unable to get standard life insurance may find this alternative beneficial. It does not typically need a medical exam or blood sample.
No family member will worry about losing the family home if a mortgage life insurance policy is set.
One’s concerns regarding his family’s financial security from his death or inability to work are mitigated by this protection. Aside from annual property taxes and insurance premiums, the family has a permanent location to call home after paying off their mortgage.
