Do You Need Mortgage Life Insurance?

Ryan Guina is an entrepreneur and writer. He has worked for Fortune 500 companies and served six years in the USAF. He writes about money management and small business topics at Cash Money Life and military money topics at The Military Wallet. You can follow his twitter feed.

You searched for weeks to find the perfect house, then searched for the best online mortgage rates and sat down to sign the paperwork. Then you were offered mortgage life insurance. If you chose to decline this insurance, you were required to sign several more forms declining the coverage. What gives?

What is Mortgage Life Insurance and Do You Need it?

Mortgage life insurance is a life insurance policy that will pay off your mortgage in the event you pass away before you’ve done so. It is marketed as a product to give your family peace of mind. The reality is that your family will not actually receive any cash from the insurance settlement, though. The proceeds go directly to the lender to pay off your home, up to the amount of value of the insurance (your family does get to keep the home though, so it’s not a loss).

A paid-for home sounds good, right?

Yes, but there is a catch. With mortgage life insurance, you are actually paying for a life insurance policy that decreases in value as time progresses.

Your mortgage life insurance policy will decrease in value as your loan amount decreases. However, your premiums will remain the same for the entire term of the loan. This is the main reason that many choose to decline mortgage life insurance.

Should You Get Mortgage Life Insurance?

There is no right or wrong answer, but there may be a better option, such as a standard term life insurance policy. Things to consider include the amount of your loan and your home’s value, your family’s assets and the primary earner’s general health and ability to purchase another life insurance policy.

Benefits of mortgage life insurance: One reason that many choose to accept mortgage life insurance is there is no medical examination required at the inception of your loan. Thus, it is a valuable insurance policy for the homeowner that has serious medical conditions that would preclude a normal life insurance policy.

Benefits of a standard life insurance policy: The main benefits are cost and control. A standard term life insurance policy has stable premiums and stable benefits. Mortgage life insurance benefits decrease as the value of your mortgage decreases, meaning term life insurance is often a much cheaper option.

Many others opt for a regular life insurance policy in order to be more in control of their finances should their loved one die. Since the bank is the beneficiary of a mortgage life insurance policy, they are the only ones receiving any compensation upon the death of the policy owner.

With a regular life insurance policy, your loved ones will be able to choose how they want to use the money, such as paying for funeral expenses, paying off other debts, etc. In addition, if there is money left over from the life insurance policy, your family can choose to put it into a savings account or where it is most needed.

A mortgage life insurance policy will never have any monies left over due to the fact that it is only enough to cover the remaining amount of the loan.

Mortgage life insurance isn’t bad, there just may be a better option available to you. The key is knowing if you have have enough life insurance. If you are offered a mortgage life insurance policy, take the time to consider whether you can get a better life insurance policy through another channel before making your decision. You may find that it can save you a lot of money.