So you’ve closed your Mortgage. Congratulations! You are now the homeowner. This is one of the biggest investments of your life. It’s also the most important step in your life because of the time and money you put into it. So you want to make sure your dependents are covered in case you die before you pay off your mortgage. One option you can choose is mortgage life insurance. But do you need this product? Read on to learn more about mortgage life insurance and why it can be an unnecessary expense.
- Mortgage life insurance is sold by banks as life insurance affiliated to lenders, who obtain information about your mortgage from public records.
- Companies solicit business by telling those who owe their mortgages that their loved ones would face financial hardship without these policies.
- These products are characterized by high premiums and a lack of transparency.
- They may appeal to borrowers with poor health or poor medical histories.
What is Mortgage Life Insurance?
Mortgage life insurance is a special type of insurance. Mortgage life insurance is a special type of insurance. Death benefits are given to your beneficiaries when you die like traditional life insurance. Yes, mortgage life insurance only pays back the mortgage. The borrower dies as long as the loan remains. This is a great benefit to your heirs if you die, leaving a balance on your mortgage. But without collateral, there is no return.
One thing to keep in mind: don’t take mortgage life insurance and mortgage insurance. The latter is private insurance and must be insured as a condition of a regular mortgage. While mortgage life insurance can protect your borrowers and their heirs, mortgage insurance Protects lenders if mortgagors fail to meet their financial obligations. The premium is either paid separately or charged to the borrower’s monthly recurring account mortgage payment.
Mortgage life insurance is not mortgage insurance The latter protects the lender in case the borrower defaults on their mortgage loan for any reason.
Once you’ve closed your loan, keep an eye out for regular emails and phone calls trying to sell you a mortgage life insurance policy. These requests are often disguised as official mortgage requests from lenders. Documents often begin with shocking titles such as:
- important hint! Please fill out and return!
- Final notice! Mortgage Protection Card!
- Admission Notice! Unsecured Housing Guarantee!
These statements are usually followed by scary, strategic statements like, “If you die tomorrow, will your family be able to keep paying the mortgage and maintain their quality of life?”
Types of Mortgage Life Insurance
Mortgage life insurance policies, also known as mortgage protection life insurance or mortgage protection insurance policies, come in two basic forms. The first is a recession spending policy, in which the size of the policy decreases proportionally as mortgage lending declines. So, the closer you get to zero, the lower your spending will be. Another type of mortgage life insurance is called term insurance. With such a policy, spending will not decrease.
Mortgage Life Insurance Benefits
Mortgage life insurance may benefit those who are ineligible to apply for term life insurance. Because of ill health, such policies are often sold without a policy underwriting. But as with other policies, candidates should seek quotes from several companies and Check each company’s financial strength rating with others I’m the best, rating company that gives insurance companies a letter rating.
Those who want to avoid a drop in their payout policy should opt for a policy with no medical check-up period, with the same level of premium and death benefit. Even though these policies cost more and maybe less expensive news coverage than regular medical history reviews and physicals, at least they’ll pay the same benefits, whether you die 10 or 25 years into your mortgage.
Another possibility is to buy a policy that offers more coverage at a lower price before your mortgage term. The main thing is to consider switching to a guaranteed term policy.
Some policies may refund your premium if you never file a claim after paying off your mortgage. However, the premiums returned to you are likely to be far less valuable than you claim inflation is eroding their value. Plus, if you buy cheaper term life insurance, you’re likely to waste the opportunity to invest the money you could have saved.
The truth about mortgage life insurance
A mortgage-backed life insurance policy is often unwise. First, there is no flexibility. Unlike term life insurance, the beneficiary is the beneficiary. Most insurance companies will pay the insurance money directly to the lender so your beneficiary never sees the money.
Second, expect to pay high premiums. If you are a healthy person who has never smoked, these plans are usually more expensive than regular life insurance. Traditional life insurance may be a better option.
There’s a good chance you won’t find much transparency. Unlike other types of insurance, it can be difficult to get a quote for mortgage life insurance online, which is a major problem as prices can vary widely.
Finally, expect your premiums to fluctuate. Unlike a term policy, which charges a fixed premium for 30 years and the price does not rise unexpectedly, a mortgage life insurance premium may only be fixed for the first 5 years and may spike at any time thereafter.
Do you need mortgage protection life insurance?
Some companies offer policy premiums that charge a flat fee for the duration. But in many cases, spending on these policies may decrease over time as potential spending. This type of mortgage life insurance, sometimes called declining term insurance decreases, is designed to pay off your mortgage balance while your beneficiary pays a portion of your mortgage principal each month. As a result, the policy’s potential payout shrinks with each mortgage payment.
On the other hand, some newer products have a feature called “Death Benefit” where the payout doesn’t drop. For example, if you are taking out a $100,000 mortgage, your beneficiary, not the lender, will receive the full $100,000, even if the mortgage debt drops to $65,000. Some policies allow you to convert mortgage insurance to life insurance if you pay off your mortgage during the life of the policy.
Like other types of life insurance, mortgage life insurance may not be available after a certain age. Some insurers offer 30-year mortgage life insurance for applicants 45 or younger and 15-year policies only for applicants 60 or younger.
Mortgage life insurance providers tout the importance of adding their products to existing life insurance coverage by convincing you that payouts will be eaten up by mortgage payments, leaving your loved ones in financial distress. But a better remedy is to buy more life insurance.
Those worried about leaving an expensive mortgage with a loved one should consider term life insurance, a typically superior solution to mortgage protection life insurance. New York Life, one of the best life insurance companies, offers flexible term life insurance policies.