Advantages of Mortgage Life Insurance
A mortgage life insurance is very convenient and, in most cases, there are no medical exams required for this policy.
Therefore, if you are denied term life or whole life insurance due to medical issues, mortgage life insurance might be the perfect alternative to financially protect your home and keep a roof over your family.
Mortgage life coverage can also be added to an individual life insurance policy.
For instance, if you have a mortgage life insurance policy and your mortgage is paid in full, your family can use the benefits from your term or whole life insurance policy to pay bills or other expenses.
Disadvantages of Mortgage Life Insurance
One of the biggest downsides to a mortgage life insurance, the declining payout!
That means, even though your premium will remain the same, the payout will decrease as you continue to pay off your mortgage. The premium is usually much higher than you would have to pay for term life insurance.
Bottom line: The cost of mortgage insurance is usually more expensive.
Another serious drawback, mortgage life insurance helps the lender more than the needs of your family because the bank will get the money, not your family. Even though this policy will remove the stress of paying off the mortgage, your family will still be stuck with bills and other debts they might not be able to afford.
With a regular life insurance policy, your family can use the money to pay bills, loans, college tuitions or the mortgage.
For instance, term life can offer more than a mortgage life insurance policy.
You can choose the life insurance payout amount of the policy and how long you want it to last. For example, you can choose a 10, 20, or 30 year term policy. The length could be the amount of time it would take to pay off debts.
The Better Solution
Instead of buying a traditional term life policy or mortgage life insurance…
Protective Life came out with a product that is an excellent solution.
What is it?
Protective Life Custom Choice UL
When you use Protective Life’s Custom Choice UL, you get the benefits that are similar to term, but with the flexibility that term doesn’t provide.
- A level premium & coverage for specified periods of time.
- Flexible options that are adjustable in the future.
- Your benefit amount reduces as your needs reduce (i.e. your mortgage principal getting paid)
CASE STUDY: How to save money on Mortgage Protection?
The example below is for a 35 year old male, non smoker in good health. We’ll call him “John” for this example.
John recently bought a home for his young family and has a $375,000 mortgage.
Let’s compare a typical Term Life strategy vs the Protective Custom Choice UL
30 Year Term Life Policy
Death Benefit: $375,000*
*Level benefit for years 1-30
Annual Premium Years 1-30: $427
Total Premiums Paid:
Protective Custom Choice UL
Death Benefit: $500,000*
*Level benefit for years 1-20
Annual Premium Years 1-30: $331
Total Premiums Paid:
John saved $2,880 over the life of his policy.
That’s a 22% overall savings!
What’s even better?
For less premium, John got an extra $125,000 death benefit during the 1st 20 years of the policy!
Let’s look at this more closely:
Term Life vs Mortgage Life Insurance Comparisons
When shopping for either Term, Universal Life or Mortgage life insurance…
…there are important things you should take into consideration.
1. Your Overall Health
Mortgage life insurance is the easiest way to qualify for coverage because a medical exam is often not needed..
You normally do not need a physical which is important if you have health issues. Also, you will not have to worry about seeing a doctor, if you have a substance abuse situation or any other underwriting issues that could make you a risk factor.
You might think this is the best way to go if you have health issues but that’s not necessarily the case. If you are in relatively good health, a no-exam mortgage insurance will be expensive. The cost of term life insurance that requires a screening exam from your home is only half the cost for mortgage life insurance.
It’s to your best interest to get with an experienced life insurance agent who has access to many life insurance companies and will be able to give you estimates and comparisons. All these insurance providers have their own underwriting guidelines and the cost of their policies.
We specialize in finding the most affordable insurance for those who are considered high risks for life insurance.
2. Restrictions With Mortgage Life Insurance
The restrictions, known as exclusions, must be considered when looking into mortgage life insurance.
If you don’t, you might be living under a false guise of security. Even though these policies are not medically underwritten, there are still reasons they may not pay off.
If you have diabetes, you really do not want a policy that might not pay off if you die from something related to diabetes.
Keep in mind, many of these policies will Only Pay Out If You Die Accidentally!
We cannot stress enough that you must get with your insurance agent to go over all the exclusions as well as the fine print!
The bottom line, even if you had to run around in circles to get term life insurance, it’s still the best policy you can get. As long as you make your payments, you will have your coverage.
The only threat you could run into would be if you lied on your application or passed away within the first 2 years. The other positive, you do not have to wait, you are fully covered from the time you make your first payment.
3. Choosing Who Should Be Your Beneficiary – Your Family Or Your Bank?
If you choose a mortgage life insurance, your beneficiary will be your lender.
They are making sure that your financial obligations are met. Although being mortgage-free might give your family great peace of mind, it might not be the best option.
Keep in mind, your cost for this insurance will remain the same year after year even though your outstanding mortgage continues to decline.
Even if you believe as your mortgage amount declines, you will pay less for the policy, mortgage insurance is a great deal more expensive than term life.
For most people, having a roof over their head is important but most agree that paying off bills will make it easier for your family to pay the mortgage.
Receiving a tax-free lump sum will also allow your family a little wiggle room should financial obligations pop up in the future.
The Myth – The Decrease In Benefits Should Equal Lower Premiums
Keep in mind, your insurance policy is written in favor of the insurance company.
These companies are happy to charge you a certain added amount to reduce their exposure over time. Therefore, if you can live through a home free exam for term life, you will get a much better coverage and a much lower cost.
Even though your mortgage will decline over time, you still have to consider property taxes, utilities, and other costs.
Although you might think your property tax of $2,500 is not a big deal, an added $50,000 could be better used for other bills or to purchase items such as home appliances or a new roof.
An extra $50,000 in term life insurance may only cost a few dollars more.
You might even discover that you can add a little more to your term life coverage that will actually cost you less. Many insurance companies charge less for a $250,000 policy than a $220,000 policy. In insurance terms that is known as “banding”. Cost of insurance will decrease at certain intervals of purchased amounts.
Again, get with your insurance agent to get inside scoop!
Remember, most people will not die in their sleep!
You could come down with a serious illness that will leave your family with medical bills reaching thousands of dollars as well as burial costs.
Bottom line, that $50,000 will come in very handy for circumstances like this.
Paid Off Your Mortgage or Moving? – What happens now?
Your mortgage life insurance will end once you pay off or sell your home.
If you have term life, you are not obligated to keep it any longer than you need it. Cancellation is really easy, just call your agent and he or she will give you the paperwork to proceed or you can just stop payments. If your payments default by more than 30 days, your policy will cancel automatically. Keep in mind, if you make auto payments, you will need to get with your bank.
Also, the majority of insurance providers pay a prorated refund.
So, if you pay quarterly and then cancel one month into the policy you might be due 2 months of premiums.
Mortgage Life Insurance & Bundling – Is it an issue?
If bundled into your mortgage, you cannot cancel your mortgage life insurance later on when you don’t need it.
For instance, you don’t have other relatives – just your wife and you have insurance to keep a roof over her head.
Should she pass away or divorce you, you may want to stay in your home but you certainly do not need your life insurance.
After all, who wants to continue paying for something they don’t need?
As mentioned earlier, mortgage life insurance policies with decreased benefits usually cost more than policies with death benefits.
This is because these policies do not require health exams.
Typically, if someone buys a new home or refinance their mortgage, these companies will send out their offers via snail mail.
Usually, these policies cost a good deal more than a guaranteed level term but are much easier to qualify for.
Affordable Mortgage Life Insurance Rates
Finding affordable coverage is possibly your number 1 goal when researching the cost of insurance.
How much is it and what’s the average cost of Mortgage Life insurance per month?
Rates will vary considerably based on your age & other variables.
We created an entire section to our website devoted to sample rates based on your age.
Please visit our Life Insurance Rates by Age page to get an idea of what a basic term life insurance policy will cost with no personal information needed.
Mortgage Life Insurance Quotes
Feel free to run instant life insurance quotes by simply clicking the GET QUOTES button below.
You’ll be able to compare rates from dozens of the best life insurance companies on the market.
On the other hand, if you want protection with a specific product such as the Protective Custom Choice UL, simple contact us for customized rates.
Mortgage Life Insurance Options
If you go to another agency, take a look at other options that might protect your mortgage with life insurance.
It is really important that you become familiar with these alternatives so you can make an educated decision when you buy a policy.
When reading the fine print, you may discover policies that will only pay out if you die accidentally!
Keep in mind, you want a policy that is comprehensive so your family is not left behind if something happens to you.
Here are some other kinds of policies to help cover you:
1. The No Exam Life Insurance Policy
This is a good policy, especially if you have serious health issues, but keep in mind a no-exam policy will cost you more.
Therefore, if you are in good health, you will get better coverage for less money going through the medically underwritten policy.
2. Private Mortgage Insurance or Mortgage Insurance Protection
If the lender adds Private Mortgage Insurance to your conventional or FHA loan, make no mistake – this life insurance only pays the lender, not your beneficiaries. In other words, you pay for these insurance policies but only benefit the lender.
Your family will receive absolutely nothing.
If you are looking for a mortgage protection insurance, make sure your family will be the beneficiary – not the lender!
That said, if you have this kind of coverage, you must have life insurance to protect your family so they can continue to pay the mortgage or pay it off completely!
3. Level Term Life Insurance
Many insurance agents are now selling level term life insurance to people looking for home protection.This policy guarantees coverage to pay off your home should you pass away before your mortgage is paid off.
The remaining death benefit can be used by the beneficiary for other expenses at their own discretion.
The policy does not decline over time so it’s actually a better choice for home protection. The downside, it can result in over-insurance which will be quite costly if it’s not needed.
For instance, if your mortgage is only $75,000 when you pass away and the death benefit is $500,000, you have been paying way too much for coverage.
About Mortgage Disability or Unemployment Insurance
Basically, these types of policies are fine except they will not pay off your home if you were to die! They will only temporarily make payments if you are unable to make payments, possibly from a disability.
They are not a good choice for replacing a mortgage life insurance policies.
Get Help Now
I hope this information has given you an understanding regarding Mortgage Life Insurance vs Life Insurance. Finding the right mortgage protection insurance companies can get overwhelming. Let us help!
There are good policies available to protect your family, but it is highly advised you get with your insurance agent or give us a call to find a plan that works best for you.
Comparing mortgage life insurance rates and options from multiple companies is just the beginning to sound advice. To learn more about life insurance, make sure to visit our page Life Insurance 101 and find out all the shopping and insider tips to buying life insurance.