Homeowners who pay mortgages on their homes can use the life-saving services of mortgage life insurance. Especially if you have a family and everyone stays under the same roof. To bolster the fact, mortgage life insurance makes life easier for policyholder’s survivor(s), so they won’t deal with a lot simultaneously.
But first, take time to shop around for quotes from reliable insurance companies. It’s a way to see other policy plans and coverage packages before settling for a suitable one.
What is a Mortgage Life Insurance?
Mortgage life insurance is a policy that pays out the mortgage debt if the insured passes on so long the insured, who is the policyholder, remains the property owner, and the mortgage plan still exists after they pass on.
Meanwhile, the mortgage lender is set to be the beneficiary instead of the policyholder’s family members. So the benefits for the family members go to the lender, who uses it to clear off the remaining mortgage. Furthermore, mortgage life insurance can also be referred to as mortgage protection insurance. It is less expensive than the other types of life insurance and an inexpensive way to protect your mortgage.
For example, when a person passes, their estate becomes the responsibility of their survivors. The loved ones may have to deal with lengthy probate proceedings, medical costs, tax bills, and other costs. That’s why buying a life and mortgage insurance policy for a person’s life is essential.
Differences between Life insurance, Mortgage Insurance, and Mortgage Life insurance
Most times, these insurance policies confuse many people. They are somehow linked and intertwined but still have unique rules and differences. We will explain each here so that you will know a thing or two about each of them and who needs which.
Term Life insurance
Term life insurance is a policy offered by some life insurance companies; it makes a pay-out of benefit to the policyholder’s spouse or heirs selected explicitly by the policyholder upon the policyholder’s passing. But the condition remains that the policy must be in force before the policyholder passes away.
Here, the policyholder pays the premiums while they are still alive. The premiums may be paid monthly, quarterly, semi-annually, or annually, depending on the policy. So, the beneficiary is the person who receives the insurance money in the case of the insured’s passing. At this point, the beneficiary can use the pay-out according to desire.
Additionally, term life insurance is a temporal coverage that considers a person’s age, health, and general life expectancy; it can even be converted to a whole life insurance policy.
Now, mortgage insurance protects the lender against a borrower’s default on a mortgage. It means that the insurance protects the lender should the borrower default on the mortgage. More so, this insurance is usually paid as a lump sum premium by the borrower, at the time of closing, to the mortgage insurer.
Lenders use this insurance to reduce the risk of lending money. For example, say a borrower defaults on their loan, the lender would get back less than the amount they gave to the borrower. So, the lender needs insurance to help cover that loss.
Mortgage life insurance
Finally, mortgage life insurance is another form of life insurance, and it helps to protect an individual’s mortgage or loan in the event of the policyholder’s passing. The lender usually offers mortgage life insurance, and it’s typically less expensive than term life insurance.
However, since the loan is paid off in the event of an individual’s death, it ceases to exist. So, it’s technically not “life insurance” in the first place.
What mortgage life insurance covers
It protects families in their homes but knows this; you might lose your mortgage insurance if you decide to change houses or move. So, be sure of your plans and the clauses on the policy plan.
More so, mortgage life insurance covers your family from financial hardship and losing their home in case of your passing. The plan begins as soon as you get a mortgage.
On a deeper level, the plan covers the interest and principal amount on a home loan, repayment of any outstanding mortgage balance, and remaining mortgage balances. But before you finally go for this plan, check out the company’s stipulated life span of the policy and the affordability of the premium.
Types of mortgage life insurance
Two types of mortgage life insurance exist.
An insurance company guarantees a level amount of coverage for a loan that does not exceed 20 years. So, the amount of premium paid remains constant without increasing or decreasing.
Decreasing Term insurance
Here, the size of your mortgage keeps decreasing with the outstanding balance until they both go to zero.
What age bracket can buy coverage?
Many companies have set limits on the age of purchasers, and your state of residence matters too. However, at 20 years, you can purchase coverage that can last for another 30 years. But the downside is that most companies limit young people from buying this coverage.
Benefits of mortgage life insurance
This coverage offers you some benefits that will always be worth your stress. It includes
Protection for your family after you pass.
Indeed, your family does not get this in cash which can be seen as a downside, but it is still a comfort to know that they will not go homeless in the event of your passing. This coverage will ensure they keep the house; so long they do not plan to change homes.
Depending on your plan, you can get some low policies for your coverage if you look around well. But generally, it is not an expensive policy.
You may be lucky enough to get a plan that pays if you ever become bedridden or disabled and can not work again. That means that they will not wait until your passing before your mortgage is cleared.
In summary, this coverage may not be your overall best life insurance plan, but it still does its job elegantly. It will not serve anyone who is not dealing with a mortgage; there are other policies that may be more appropriate. But if you always have to put money aside for a mortgage, this should be among your coverage.