Many homeowners tend to overlook mortgage life insurance, but it helps ensure that your family will not be evicted in the event of your passing away. This policy serves as financial security because it offers enough coverage to pay off your debt. Insurance providers tend to favor homeowners with limited medical issues by providing them better quotes and greater coverage options for term life insurance. Those suffering from lifelong and terminal illnesses are often disqualified for term life insurance, but mortgage life insurance offers them larger death benefits than other life coverage policies.
What Is Mortgage Life Insurance?
Mortgage life insurance, also known as mortgage protection insurance, is a type of coverage designed to cover the full costs of your outstanding mortgage balance if you die before closing the transaction. This coverage is usually offered by your lender but can also be sold by insurance companies. The structure and benefits of each offer can vary significantly, so it is best to look around for various offers before deciding on the best deal for you.
This policy isn’t lifelong, so it works over a specific duration, usually 15 to 30 years.
Types of Death Benefits Related to Mortgage Life Insurance
The following are the three forms of the death benefit associated with mortgage life insurance policies:
The decreasing benefit is when a fixed sum of money is paid over the first few years of coverage, following a decrease in the amount to be paid at a specified rate over the policy’s life.
This benefit is similar to the decreasing benefit, but it is tied to the outstanding mortgage principal. Your policy will reflect if you pay your mortgage faster or slower than the agreed time.
For level death benefit, the amount paid overtime will remain the same throughout the policy term. This benefit is ideal if you have an interest-only mortgage with a pre-determined principle.
Limitations Imposed by Mortgage Life Insurance
A significant difference between mortgage life insurance and term life insurance is that the former pays the death benefit directly to your mortgage lender. If your coverage amount is higher than the outstanding mortgage balance at the time of your death, no excess amount will be paid to your relatives. Some insurance companies offer mortgage life insurance with a clause stating that the client’s family is entitled to make claims only if the client dies in an accident.
Mortgage life insurance is usually tied to your home as part of the mortgage requirements. If that’s the case, you have to purchase a brand new policy if you move out. Mortgage life insurance generally has a high premium rate because it is a life insurance policy that is tied to your age. Learn more.
These are a few things you need to know while considering a mortgage life insurance policy. At Young Insurance, we can help you buy the right life insurance coverage with structures and benefits that fit your needs. Contact us today to get a quote!