Mortgage life insurance can generally be purchased through your lender or an insurance company affiliated with your lender. This type of insurance policy ensures that your mortgage balance will be paid in full in the event of your death, and in some cases, in the event of a disability.
About Mortgage Life Insurance
If you die unexpectedly, mortgage life insurance will ensure that your family or surviving heirs do not have to worry about making your monthly mortgage payments. This can be very valuable insurance, as your family will likely be going through a difficult enough time as it is. The last thing they should have to worry about is losing their home to the bank.
You can typically purchase mortgage insurance from your lender, an insurance company associated with your lender, or an independent insurance agency that offers this type of insurance policy. The insurance can be purchased at the same time you take out your mortgage or at a later date.
Policies and Premiums
There are two basic types of mortgage life insurance policies that can be purchased:
- Basic Mortgage Life Insurance
- Mortgage Accidental Death and Disability Insurance (Mortgage AD&D)
Both types of insurance policies pay off a mortgage loan if the insured borrower dies. However, there are differences between the two policies. Before making any decisions, it is a good idea to thoroughly evaluate both of these options and determine which best suits your needs.
The insurance premium you will pay for mortgage insurance policies will vary depending on the company that you purchase the policy from. Even so, premiums are generally determined by the following factors:
- Amount of the mortgage loan
- Borrower's age
- Borrower's physical condition
- Tobacco use
Insurance premiums usually do not stay the same during the life of your loan. Instead, you will see periodic increases (usually on an annual basis). Though medical exams aren't often required in most cases, you may be asked to supply information about your health status. If your health isn't good, it may have a significant impact on the price you pay for this type of insurance.
Mortgage Life vs. Regular Life Insurance
Though mortgage life insurance can be very valuable, it may not be absolutely necessary if you have a term life or permanent life insurance policy. These policies will provide your beneficiaries with a life insurance settlement/death benefits. Settlement funds can be used to pay off your mortgage, as well as other expenses that your death may incur, such as medical expenses and/or funeral costs.
However, life insurance settlements only go so far. If your family needs to use a huge chunk of the settlement to pay off your mortgage or keep up on mortgage payments, there may be little money left over to pay for other expenses or to keep up their current lifestyle. This is why a mortgage life insurance policy could pay off for you and your heirs. Additional benefits to purchasing mortgage insurance over or on top of regular life insurance include:
- Affordability. The premiums for mortgage life insurance and mortgage AD&D policies are typically less than the premiums paid for regular types of life insurance policies. If you are on a budget, mortgage insurance may be more affordable for you.
- Risk Factor. If you have been turned down for life insurance coverage because of health problems, hazardous employment, or risky hobbies, you may still be eligible for mortgage insurance coverage.