Mortgage life insurance refers to a type of policy that is sold to the bank or mortgage company that pays of your mortgage when you pass away. In many situations this kind of policy is the mortgage company. In some situations, that may actually be your preference as it would remove the burden of having to pay for your mortgage from your beneficiaries. However, there are certain situations where it makes more sense for your loved ones to get the benefits directly from your life insurance policy, giving them the option of whether or not to pay off the mortgage.
More than 65 percent of Americans live in a household that depends on the income of at least two individuals, and it’s likely that you depend on one another’s income to pay the mortgage in this situation. There are two primary types of mortgage insurance, and it is a good idea to consider using one or another in order to protect your biggest investment. You need to know how to do the research to determine what is most appropriate for you in this situation.
Types of “Mortgage Insurance”
The first kind of insurance is known as private mortgage insurance. It’s required by your lender in the event that you don’t have enough of a down payment when you purchase your new home. This kind of insurance has no relation to what happens to your family in the event of death or disability. Instead, private mortgage insurance is there to protect the lender in the event that you were to default on the loan. You make the premium payments and this kind of insurance can be purchased directly through your lender.
The second kind of insurance is mortgage life insurance. The benefits associated with a policy like this are for and your family. This is because the policy benefits allow your family to become yours without any concerns if you or your spouse were to pass away. This gives you a lot of peace of mind, since you will know that in any situation, your family will be properly cared for and able to stay in your family home, even if something happens to you. Many people who choose to get their own policy may do so in conjunction with the private mortgage policy. This is because few people like the option of having insurance that they have no control over, and insurance for the lender does not protect your family in the event that you pass away.
Term life insurance, for example, can help you address other concerns related to your family if you were to pass away. Paying off the mortgage might be part of that, but you may also need to replace your income for your loved ones so that you know they are taken care of no matter what. This is why it’s a good idea to consult with an insurance agency about using term life insurance. For a relatively inexpensive cost, you can get a term life policy that gives you the comfort you need about providing for your family. Your term life insurance policy can be used by your beneficiaries to help piece their lives back together if something happens to you, meaning as few disruptions as possible. Thinking about your family struggling or having to leave the house that you have grown to call home can be devastating, but the right insurance policy can help you guard against this.
Term vs Mortgage Protection
In the immediate financial aftermath of you passing away, it could be possible there are pressing needs more important than paying off the house, for example. One of the easiest things to do in this particular situation is to obtain mortgage life insurance in terms of term life insurance. This is sold in the open market and is typically very competitively priced allowing you to name your children directly as the beneficiaries rather than the mortgage company itself. There are other disadvantages associated with mortgage life insurance that you should take into consideration. For example, the premiums you pay on the policy will typically be grouped into the home loan. This means you’re also paying finance charges on the premiums. Using a term life insurance policy, however, a non-smoking and relatively healthy individual could beat out the premiums associated with mortgage life insurance policies by as much as 50%. Another typical disadvantage associated with direct mortgage life insurance is that the insurance is linked to the house. This means it is not transferable the same way that a typical life insurance policy is. There are certain situations though where it makes the most sense to get life insurance from the mortgage company. This would mean if you have serious health conditions like diabetes or high blood pressure, if you are a smoker, if you are obese or if you have other medical concerns that make it impossible for you to receive preferred rates from a term life insurance company. Your medical conditions might also prohibit you from getting life insurance at all which is why you may want to consider obtaining mortgage life insurance as well. In these situations, it could be your only option and it could provide a significant benefit to you. I got a foudner of a real estate brokereage to weigh in on her exprience with this: “As a real estate broker I run into alot of couples who are purchasing a home together but have no protection against the financial disaster that can come with an unexpected passing. I always make it clear to them that getting a policy in place is a must, and not just something to protect your home, but your family. Always opt for real life insurance coverage.” Says Elionora, Founder of Chance Realty .
Since your home will probably be the one of the largest investments you will ever make, you should factor this in to your overall financial planning for your family if something happens to you. Your family likely counts on your income in order to pay bills including mortgage payments. In case you were to pass away, your loved ones might have challenges in order to stay in the home. You can stop this from becoming a reality by getting a mortgage life insurance policy. Typical term lengths are 15 or 30 years aligned with the length of your mortgage. In many cases, these can be issued for between ages 20 and up to 60 depending on the term length.
Your premiums can be paid quarterly, monthly, semi-annually or annually and the coverage amount you need is determined by your mortgage balance. Your death benefit will decrease over the course of your relationship with the insurance company because your mortgage is also decreasing as you pay it. Of course, in any situation involving life insurance, you should always consult directly with a knowledgeable insurance agent or agency so that you can be fully prepared and understanding of the issues affecting you. Do not hesitate to get advice from a knowledgeable life insurance agent as soon as possible. There are many different benefits associated with life insurance and helping your beneficiaries pay off a mortgage and continue to stay in the home they love may be one of your biggest priorities.
The good news for you is you’re at the right place! Welcome to InsureChance. If you need life insurance for a home loan we would be glad to assist you and answer all of your questions. Feel free to call us at 888-492-1967 or hit the chat button below!
