Image courtesy of Flickr, David Amsler
Mortgage Life Insurance will pay off your mortgage balance if you die. Learn about the pros and cons of this insurance option to determine if it is the right protection for your family.
Life insurance might seem like a relatively straightforward purchase, but in fact there are an endless number of policies and plan options available.
You can purchase simple term life insurance and get a standard death benefit. You can use whole life insurance to build up cash value and supplement your investments. You can also purchase life insurance for a specific reason, like paying off your mortgage or making sure your kids can go to college.
Mortgage life insurance is one of the more interesting life insurance products on the market. As the name implies, mortgage life insurance pays off your mortgage if you die. These policies are often marketed to homeowners as protection against uncertainty and as a way to ensure the home stays in the family.
Whether mortgage life insurance is a good deal or not depends on a number of factors, from your physical and financial health to the financial assets you hold. It is important to look at the pros and cons of these policies before choosing this type of protection.
Some homeowners would be better off purchasing a low-cost term life policy that provides a cash benefit. That cash benefit can be used for any purpose, including paying off the mortgage.
Some homeowners may not need life insurance at all, especially if you are young and single, or if you have enough financial assets to meet the needs of the family on your own.
One advantage of mortgage life insurance is that you can qualify even if you have a medical condition that prevents you from purchasing term life insurance. Many people who have been turned down for traditional term life coverage decide to purchase mortgage life insurance for the protection it provides.
In most cases, a physical exam is not required to purchase mortgage life insurance. In addition, some policies provide coverage in the event you become disabled and are unable to work.
Easier Loan Approval
Another advantage of mortgage life insurance is that having a mortgage life insurance policy can make the approval process easier and may even help you get approved.
The presence of a mortgage life insurance policy can reassure the lender that your home will not go into foreclosure in the event of an untimely death.
It can make sense for a person who would not otherwise need life insurance, like a healthy young person with no dependents, to purchase mortgage life insurance when buying a home. This strategy can be especially helpful for people buying their first homes.
Be sure to let your real estate agent and lender know that you are considering mortgage life insurance and whether or not it will give you an edge when shopping for a mortgage loan.
One of the disadvantages of mortgage life insurance is its cost. This policy typically costs much more than a simple term life policy with a similar cash payout.
If your goal is to protect your family, you might be able to get a better deal by purchasing a good term life policy with a generous death benefit. If you die, your family can use that money any way they see fit, such as paying off the mortgage balance.
Another disadvantage of mortgage life insurance is its limited use. Mortgage life insurance has one purpose and one purpose only - to pay off the mortgage if you die or become disabled. This is a very limited utility, and there are many other ways to achieve the same kind of protection.
Keep in mind that the value of your mortgage life insurance will decrease right along with your mortgage balance.
It might have made sense to purchase this coverage when your mortgage was $300,000, but it will not make so much sense when your loan is down to $30,000.
Weighing the pros and cons is the best way to make any insurance decision. If you think you need mortgage life insurance, it is important to look at the benefits and the potential pitfalls as well. There is no commitment necessary to speaking with an insurance agent to get more information about mortgage life insurance.
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