A lot of times we have heard the word ‘mortgage’ and come across phrases such as ‘mortgage life insurance’.
If you’re a newbie and want to know more about mortgage life insurance and how it works, you’ve come to the right place. And if you’re someone who wants to get mortgage life insurance, this detailed guide will tell you exactly how to go about it.
But first, let’s start with the basics!
Table of Contents
- 1 What does the term ‘mortgage’ mean?
- 2 What is mortgage protection life insurance?
- 3 How does Mortgage Life Insurance Work?
- 4 What is the difference between Mortgage Protection and Life Insurance
- 5 Mortgage Term Life Insurance
- 6 Mortgage Life and Disability Insurance
- 7 Pros and Cons of Mortgage Life Insurance
- 8 Mortgage Life Insurance Companies
- 9 Mortgage Life Insurance Rates
- 10 Credit Life Insurance Mortgage
- 11 Reverse Mortgage Life Insurance
- 12 Is Mortgage Life Insurance really worth it?
What does the term ‘mortgage’ mean?
Mortgaging your house or any part of your asset is in some cases a legal obligation when it comes to taking a loan. A mortgage can be simply defined as part of your asset being held up in exchange (like collateral) when you’re asking for a loan from banks or any organizational entity.
This home mortgage life insurance is basically held up as part of the legal transaction until you pay off the loan fully along with interest. If someone can’t pay their mortgage on time, it will heavily affect their credit scores leading to difficulty when applying for more loans. A bad credit score stays on your profile for up to seven years- so make sure your mortgage payment is always paid on time.
What is mortgage protection life insurance?
A mortgage protection life insurance is simply to pay off a mortgage debt of a policyholder in case they die.
People typically ask for mortgage coverage because in an untimely death, if their family can’t pay off mortgages it could lead to consequences, such as foreclosure in an extreme case. And to avoid putting that sort of financial debt on families, people often opt for mortgage life insurance.
But if you don’t have any dependents, this is a good way to have your mortgage paid.
How does Mortgage Life Insurance Work?
Let’s assume you just got married or you found a cool new location, and you decide to buy a house. Typically, your real estate broker will offer you a mortgage insurance plan. But you ask, how does a mortgage life insurance work?
The policy’s length will determine the number of years you have until you fully pay off your mortgage. In such a case, your house lender is the beneficiary. In case you die, the insurance company will pay off the remaining debt to your broker, NOT your spouse or your family.
People can have a joint mortgage life insurance plan; for instance with their spouse. If both the people die at the same time, the company will cover the mortgage life insurance cost and pay off your house lender. If one of the two people dies, the spouse will have to continue paying.
What is the difference between Mortgage Protection and Life Insurance
Now that we’re clear on what mortgage protection is, and we know what life insurance is, there is a common confusion of what the difference between the two is.
In life insurance, a tax-free amount is paid to your family if you die, but in mortgage protection insurance, the money is paid to your bank or your house broker to clear off the mortgage.
In life insurance, the amount of cover is fixed, where in the latter, it reduces over time. Since you’ve been paying, it reduces. (This is also known as the Decreasing Term Protection).
Life insurance costs more than mortgage protection (this is another reason why your bank may only give you a life insurance option without even discussing mortgage protection possibilities. So know your facts!)
To settle this debate on mortgage insurance vs life insurance, a lot of insurance experts say that it is better to pay off your house lender or a proper insurance company and sign your mortgage insurance plan with them. Banks usually have their own insurance policies where they would force you to sign up so that all of your mortgage is paid to them! They are likely to avoid transparency in the transaction and may even charge higher premiums.
Having a bank involved in the insurance policy causes a lot of documentation complications as well, so it is better that a proper insurance company with the right amount of expertise to guide you on all your possible options.
You would definitely want to do that, trust me.
Mortgage Term Life Insurance
Mortgage insurance is for a particular time period, which is why it is often called mortgage term life insurance as well.
It is slightly different from term life insurance which gives only a death benefit to the policyholder’s beneficiaries. Here’s how:
Both do work on the same principal: pay off your premiums and receive a death benefit. The difference is that with term life insurance, your family will receive the benefit for their own use. But with mortgage life insurance, the death payout will be given to the bank/broker to clear off your mortgage. This is basically life insurance to pay off mortgage.
There is a chance that premiums may remain constant for the first few years of your mortgage insurance, but it could any time spike up! And sometimes unexpectedly. In a term life insurance, the premium pretty much remains the same.
When comparing the two, this is the strongest argument that people put forward when they support their decision of inclining more towards term life insurance- and well, their argument is pretty logical too.
Mortgage Life and Disability Insurance
If you’re the sole breadwinner of your family and have a whole family depending on you for financial support, it is important that you are healthy and able to work until your kids start earning or until you retire.
For people who have a history of diabetes or cancer, it is very hard to say that such people will remain healthy and alive for a long time. In such a case where you have a lot of family pressure and you want to secure financial stability, disability insurance is a good option for you.
Mortgage life insurance and critical illness cover is used if a person is unable to work due to an illness or an accident. A monthly income is paid to the insurer for day-to-day expenses. Most plans do specify almost 40 known illnesses including heart diseases, one time strokes and even cancer!
Pros and Cons of Mortgage Life Insurance
It is important to evaluate the advantages and disadvantages that may be in store for you, should you accept a policy. Before you even look for a cheap mortgage life insurance plan, make sure you know all the pros and cons, and here are some of them:
- Convenience in application (any age)
- No medical exam (so it is generally easier for people with health conditions to qualify)
- Low cost than life insurance
- Pays off your mortgage debt if you die
- Decreasing payout (when you start paying off your debt on a monthly basis, your death payout also decreases)
- Higher premiums (varies from situation to situation)
- Families don’t benefit- only banks or brokers do
- Mortgage premium could rise any time
Mortgage Life Insurance Companies
For far too long people have been searching for the best mortgage life insurance companies and whether to sign up for suitable plans. Make sure the company you choose guides you on exactly what a mortgage life insurance is and how it works, and if it suits you, then only you sign up for it.
- Globe Life Mortgage Protection Insurance
- Wells Fargo Mortgage Life Insurance
- VA Mortgage Life Insurance (Veterans mortgage life insurance)
- State Farm Mortgage Life Insurance
- Chase Mortgage Life Insurance
Mortgage Life Insurance Rates
You must have searched the internet for mortgage life insurance quotes, but you must have had a really hard time. Finding an accurate quote is a really tough job, because insurers don’t quote them online on websites anymore.
What you can do is look for a quote online, answer simple questions about your age, health and you can easily get a rate. You can use this mortgage life insurance calculator online via Confused.
From this tool, you can find all sorts of mortgage protection life insurance quotes and find an estimate of which option to go for. Of course money is very important in such a situation and getting a quote will only make it easier for you to decide, before banks can take advantage of you.
Credit Life Insurance Mortgage
This is the kind of credit feature aimed at taking care of the parity of a home loan upon the death of the insured. A credit life insurance mortgage is widely available to people who own a home and suit well with the policy. This one is particularly carried out by banks.
There is no particular age that defines when you should be applying for a credit life insurance mortgage, but most policies do have an age limit of 70 years old. Again, this is not a universal rule, rather something that varies from plan to plan or even company to company.
Reverse Mortgage Life Insurance
A reverse mortgage life insurance is where you will only have to pay whatever your house is worth, not a dime more.
But you will have to pay for the maintenance cost of your house, no exception on that if you opt for a reverse mortgage life insurance plan. Moreover, your children won’t be able to move in the house if they haven’t paid for it. So if you want to move out, you will have to pay the mortgage in full first.
And it could put you in debt further due to the increase in interest rates! Sounds absurd, right?
There are far too many risks of opting for a reverse mortgage life insurance, so make sure you don’t throw yourself in the pit. An ordinary mortgage loan is a good option to keep mortgage debt off your family after you die.
Is Mortgage Life Insurance really worth it?
When you start weighing the pros and cons and then look at the other insurance options, you may feel that life insurance to pay off mortgage isn’t the best idea for you.
Sure, the idea sounds great! Having the mortgage cost being completely paid off after you die. But have you realized that the premiums you are paying to the policy may very well be a burden on the current financial condition of your family? And for what?
The money isn’t even coming to your family.
In such a case, I would suggest that you go for a term life policy which has affordable premiums and the death payout can be used to pay off your mortgage. At least some part of it could be used by your family.
Imagine the death payout is a particular sum, and the mortgage is 70% of that sum. Which means that the fruit of your hard work- that remaining 30% can be used by your family after you die. It could be used as a financial pillar for your family until they’re back on their feet and earning for the household. Because life insurance benefits may be used to pay off a home mortgage or other debts at the time of death.
This option makes more sense, right?
Whatever you choose to do or whatever policy you select, make sure to consider all internal and external factors and even consider the future a little. Which policy will benefit your family? Which will pay off mortgage debts? Which will remove financial instability in my family? Answer all these questions wisely before you put your signature down on a piece of paper.