If so, then you are a likely candidate for mortgage life insurance. Life insurance as a whole has stood to improve beneficiary’s lives across the globe for many, many years. Getting yourself a mortgage life insurance policy could mean the difference between success and failure for your surviving family.
When someone takes out a loan on a house, most often they will be provided with a mortgage life insurance offer as well. This means they can get the coverage they want right away and not have to go through the hassle of finding an insurance company that's reputable. Should you decide to decline the mortgage life insurance coverage, you have to fill out several forms and waivers that verify your decision.
Pros and Cons
Let’s take a look at the benefits and drawbacks to mortgage life insurance and whether or not this type of insurance coverage is right for you. As with all insurance policies there are positive aspects and negative points to consider.
A few positive aspects:
Peace of Mind
The ability to offer your family the guarantee that the mortgage will be paid off in the event of your death can be a god send. Many families simply don't have the money to recover an estate if there is money owed on it when the owner dies. You won't have to worry about your family struggling to make ends meet and repay the mortgage payment amounts at the same time.
Your Mortgage Loan Gets Fully Repaid
The loan to the bank will be fully covered by the insurance company. You can rest assured, should you choose a prominent company, that you will have your mortgage paid off according to the terms set forth in the insurance agreement.
Less Underwriting Than Traditional Policies
Life insurance policies usually require that a blood test and medical exam be taken to ensure the health of the potential insured. In most mortgage life insurance policies, there is no medical exam and it doesn't exclude people with pre-existing medical conditions or illnesses.
Those are some of the advantages to a mortgage life insurance policy. But there are also significant drawbacks to think about as well. The fact that the insurance policy doesn't require a medical exam or blood test in order to acquire coverage means that the policy might not be for everyone. There may be better options.
Now, let’s take a look at the disadvantages of a mortgage life insurance policy:
The Award Amount Is Automatically Sent To The Bank
The bank gets the entire award amount to pay for the mortgage. If you have other outstanding debts that need to be paid that are separate from the mortgage, you should choose a regular life insurance policy that lets you dictate where the award amount goes in the event of your death.
There Is No Award Amount Paid To Family Members
Your surviving family members won't see a dime of a mortgage life insurance award amount. The full amount goes to the bank and the award to the surviving family is a house that's paid off in full.
Decreasing Benefit Amount
The value of the mortgage life insurance policy decreases over time. The more of your mortgage you repay, the less the value of the policy itself. The payout is fixed to the mortgage principle.
Very Expensive
Mortgage life insurance is expensive in regards to the amount of coverage you actually receive. Over time, you receive less coverage for the same amount of premiums you pay. So, a traditional life insurance policy may be more suitable to most people. If you can handle the medical exam and qualify, a traditional life insurance award amount may give you more than enough to pay for the mortgage and leave you with some money left over.
All in All
The overall majority opinion of mortgage life insurance is to skip it altogether. You pay a fixed premium amount each month for a benefit amount that decreases as you pay your mortgage off. It doesn't make much sense. For the great majority of potentially insurable people out there, traditional forms of life insurance like whole life or term life insurance make the most sense. You control where the award amount goes, how it gets used and pay much lower premiums for the same amount of coverage.
However, for people who are in ill health, who are otherwise uninsurable, taking out mortgage life insurance can make perfect sense. Especially if the person owes a substantially large amount on the mortgage with little hope of being able to pay the lions share of it back. People in less than perfect health usually take the opportunity to have their house paid off in full after they are gone, as there is no medical exam necessary.