People purchase insurance coverage to protect many different things, such as their health, their auto, and their home. But one item that oftentimes gets overlooked is the protection of their mortgage. Most people certainly work hard each month to pay their mortgage – especially because a home is typically the largest purchase that most people will ever make.
Yet, if a person was to pass away suddenly, what would happen to their loved ones? Would they still be able to continue making mortgage payments and remain in the home, or would they be forced to move out and live elsewhere due to the financial circumstances that the loss of your income would cause?
Many people end up having to sell their home following the death of a loved one. This places an additional stress on them during an already emotional time. Leaving a place that they call home simply because they can no longer afford the mortgage, however, is an issue that can be prevented simply by purchasing mortgage life insurance.
How Can Mortgage Life Insurance Protect Your Home?
Mortgage life insurance is defined as a type of policy that is created for the primary purpose of paying off a person’s mortgage in the case of the borrower’s death while there is still a balance due. This can help the borrower’s survivors to remain in their home, without having to worry about making ongoing mortgage payments.
This can be especially beneficial if the borrower was the primary wage earner, meaning that his or her loved ones would be losing a significant portion of income upon the individual’s passing. Therefore, in addition to reducing the financial balance of the mortgage, this type of policy can also provide a great deal of peace of mind.
Types Of Mortgage Life Insurance
There are two primary types of mortgage life insurance. These are decreasing term and level term. With decreasing term, the face amount of the life insurance policy will decrease along with the outstanding balance of the borrower’s home mortgage. This will continue until both the mortgage balance and the face amount of the policy have reached zero.
With a level term mortgage life insurance policy, the face amount of the plan will remain the same throughout the life of the entire term of the policy. These types of mortgage life policies are a good choice for those who have an interest only mortgage where the amount of the principal balance does not decrease over time.
There is also a policy option that will allow a return of premium at the end of the policy’s term. This plan will require a higher amount of premium than a regular term life insurance policy. However, it has the added advantage of giving back the policy holder’s premiums, provided that the policy remains in effect throughout the remainder of its entire term.
Applying For Mortgage Life Insurance
While mortgage life insurance works in much the same manner as a regular life insurance policy does, with the payout of death benefits upon death of an insured, in many instances, these types of policies will only require a minimal amount of underwriting for approval.
Oftentimes, there is no medical examination required by the applicant for coverage. Because of this, mortgage life insurance can be somewhat easier to qualify for. Therefore, an individual who has certain health conditions may still be able to qualify for this type of life insurance coverage.
Considerations Before Purchasing Mortgage Life Insurance
There are many reasons to consider before purchasing a mortgage life insurance policy. First, having this type of protection can provide your loved ones with the ability to pay off the home mortgage. This will allow them to remain in their home, without the need to drastically change their lifestyle in the event of an otherwise unfortunate situation.
This coverage can also protect your family’s financial security. Because they will no longer be burdened with mortgage debt, they won’t have to struggle financially and forgo the payment of other important debts.
Prior to purchasing a mortgage life insurance policy, it is important to consider several factors, including the costs and benefits of the different types of policies that are available. Today, a mortgage is most people’s biggest expense – and it’s an expense that you don’t want to leave your family saddled with should tragedy strike. By purchasing a mortgage life insurance policy, you can ensure that this cost is taken care of and that those you care about will be able to remain in the place that they call home.
Alternatives To Mortgage Life Insurance
In just about every case, a mortgage life insurance plan isn’t going to be the best option. These policies are not going to be the most effective use of your money. There are several reasons that mortgage life insurance isn’t the best insurance choice.
The loan lender is listed as the beneficiary of the plan. When you pass away, instead of your family getting the payout, the bank is going to get the payout from the plan, which leaves your family with nothing. Yes, your mortgage is going to be the largest debt that you leave behind, but it’s not going to be the only one. Your family will still need money.
Another reason that mortgage life insurance isn’t your best bet is because it’s not going to be the most affordable option for life insurance. These mortgage life insurance policies don’t require a medical exam, which means they are going to have more expensive premiums. If you’re looking to get the most affordable coverage, there are going to be better options.
If you’re looking for affordable life insurance, that offers the most benefit for your monthly premium and helps you pay off your mortgage, a term plan is going to be the best choice. A term insurance policy will require a medical exam, but your family will be listed as the beneficiary of the policy, and they can use the money to pay off a mortgage debt, but still have control over any excess without having to worry about the bank as a middleman.
Calculating your Life Insurance Needs
When you’re deciding how much life insurance that you’re going to buy, your mortgage is going to be the biggest factor, but it’s not the only expense that you should account for. There are several other categories to look at so you can be sure that your face value is the right amount.
Be sure to add up your other major debts as well, like any student loans, business loans, and funeral expenses. Aside from your mortgage loan, you could still have thousands and thousands of dollars of debt, which would go straight to your family.
The next number that you should take into consideration is your annual income. The secondary purpose of your life insurance should be to replace your paycheck if something tragic were to happen to you. As a main income worker in the household, your family would suffer financially in the event you passed away at a young age. That’s where your insurance coverage comes in. It will give them the money that they need to get through the difficult time without having to worry about money to where their income will come from.
If you only consider your mortgage when you’re buying life insurance, your family could find themselves with a pile of leftover debts that could make the situation a thousand times worse. Having a death in the family is never easy, but being responsible for debts is going to make it financially difficult as well.
Life Insurance – Mortgage Protection and More
We know that finding the perfect insurance policy can be a difficult and overwhelming process. There are dozens of different plans that you can choose between, but our agents are here to help. Unlike traditional insurance agents, our brokers are independent, which means that they work with dozens of highly rated companies across the nation. You would have to deal the hassle of calling those companies yourself, but working with one of our independent brokers can save you both time and money.
We know that buying life insurance is not the most fun purchase, but it’s one of the most important. Not having life insurance coverage is going to leave your family with a lot of debt and unexpected bills. Life isn’t promised to last forever and waiting even longer to purchase life insurance could increase your rate or leave your family vulnerable to future stress.