Almost 21 million Americans, or 29.3 percent of homeowners, own their homes outright and have no mortgage, according to research by Zillow. But the majority of us are still making those monthly payments. Would your family be able to continue paying the mortgage if you were to die unexpectedly? Would they lose the house?
Mortgage life insurance, or mortgage protection insurance, can be a way to protect your family home, but it may be right for only certain homeowners.
What is mortgage life insurance?
As the name implies, mortgage life insurance is a policy that pays off the balance of your mortgage should you die. It’s often sold through banks and mortgage lenders.
The money doesn’t go to your family, but to your lender, and the payout of the policy is your mortgage balance, so the potential payout decreases over time.
Pros
The biggest benefit of mortgage life insurance is its convenience. There is often no life insurance medical exam required to buy a policy. So if you’re denied term life insurance or whole life insurance because of medical conditions, mortgage life insurance may be an option to protect your home.
Mortgage life coverage can also supplement an individual life insurance policy. For example, if your mortgage is paid off with money from a mortgage life policy then your family could use all the benefits from your term or whole life insurance policy for bills and other expenses.
Cons
Mortgage life insurance has limited advantages and serious drawbacks to consider.
The biggest downside is the declining benefit. Even though your premiums stay the same, your benefit amount is always decreasing as you pay your mortgage off. And that premium is often much higher than what you’d pay for term life insurance.
Some argue that mortgage life insurance benefits the lender more than your family because the bank gets the money if you die, not your beneficiaries. While the benefit can take away the financial stress of paying a mortgage, your family could still be left with bills and other debt they can’t afford.
With a term life insurance policy, your beneficiaries can decide how they want to use the money. Homeowners will often buy a term life policy that matches the length of their mortgage – for example, 20 or 30 years. You can also wrap other expenses into the face amount you choose, like income replacement and college tuition.
Many financial experts don’t recommend any insurance policy that only pays certain bills. Term life insurance can provide much better bang for your buck than a mortgage life insurance policy, so research the price of term life before you make a decision.
No comments:
Post a Comment