304 North Cardinal St.
Dorchester Center, MA 02124
304 North Cardinal St.
Dorchester Center, MA 02124
Purchasing a home is often the largest financial investment that many people will make in their lifetime. Along with a mortgage comes the responsibility of ensuring that your dependents and loved ones are taken care of in the event of your death. This is where mortgage life insurance comes in.
Mortgage life insurance is a type of life insurance policy specifically designed to cover your outstanding mortgage balance in the event of your death. It provides a lump sum payout to your beneficiaries which can be used to pay off the remaining mortgage on the home, so your family does not have to worry about making those payments.
The best life insurance for a mortgage is typically a decreasing term life insurance policy. This type of policy aligns with the declining balance of your mortgage, providing affordable premiums and sufficient coverage to pay off the loan in the event of your death. Top providers include AIG, Transamerica, and Prudential.
In this comprehensive guide, we will discuss everything you need to know about getting the best life insurance for your mortgage, including:
Armed with this information, you can make an informed decision about the best type and amount of mortgage protection to secure your home loan and provide security for your loved ones.
Mortgage life insurance, also known as mortgage protection insurance, is a type of term life insurance designed to pay off the remaining mortgagebalance if the policyholder passes away during the term of the policy.
The sole purpose of this policy is to provide financial security for your dependents so they don’t have to worry about making mortgage payments in your absence. The lump sum payout from the policy goes directly to the lender to repay the outstanding loan amount.
Mortgage life insurance only covers your mortgage – there is no cash value built up in the policy. It is meant to be in force for the duration of your home loan, unlike whole life insurance which provides lifelong coverage.
The premiums are usually lower than regular life insurance since the coverage period is limited by the term of your mortgage. However, you can opt for a longer term length if needed.
Here are the key reasons why mortgage life insurance is recommended when taking out a home loan:
Having this policy ensures your family is protected and can maintain their quality of life if the unthinkable were to happen.
Mortgage life insurance works in the following way:
The policy only pays out if you pass away during the term. If you outlive the term, the coverage expires without a payout.
Be sure to consult with a financial advisor to determine the right mortgage protection coverage amount and term length for your specific situation.
There are a few main types of mortgage life insurance policies:
This is the most common type of mortgage protection. The death benefit decreases over the term of the policy in line with your declining mortgage balance.
Premiums are generally lower than level term since the coverage amount reduces each year. It is designed to perfectly match your mortgage payout schedule.
Level term provides a fixed death benefit that does not change over the term length. This maintains a consistent level of protection.
Premiums are slightly higher than decreasing term since the coverage amount does not decrease. Level term may provide higher benefits if you pass away early in the term.
With whole life, you are covered for your entire lifetime. The death benefit does not expire after a set term.
This offers the most complete protection but comes with much higher premiums since coverage is lifelong. The cash value can be borrowed against if needed.
Work with an insurance agent to determine which type of policy works best for your situation.
Follow these tips to select the right mortgage protection policy for your needs:
Factor in your outstanding mortgage amount, monthly payments, dependents, income replacement needs and other expenses to identify the right coverage level for you. A financial advisor can help with this.
Shop around and get quotes from various top-rated insurers. Compare policy types, terms, premiums, exclusions, ratings and more.
Balance your budget with the level of protection. Decreasing term usually offers the most affordable premiums. Make sure premiums fit your finances.
Review the fine print so you know exactly what is and isn’t covered before committing to a policy.
Consult an insurance agent or financial advisor if you need guidance selecting the right mortgage life insurance product for your situation.
Be sure to secure the right amount of coverage for the full length of your mortgage. Your dependents are counting on this policy.
The amount of mortgage insurance you need depends on:
You generally want enough coverage to fully pay off your remaining mortgage loan if you were to pass away before it’s paid off. This ensures your family keeps the home without inheriting loan payments.
As a rule of thumb, get a coverage amount equal to your outstanding mortgage principal. Some lenders may require this. An insurance calculator can help determine the right amount for you.
The policy term should align with the length of your mortgage. So for a 30 year mortgage, get a 30 year term. You can also get a longer term such as 40 years.
Be sure to review your policy regularly and adjust if needed – for instance if you refinance or obtain a home equity loan.
Some leading providers of mortgage life insurance include:
Look for companies that have strong financial strength ratings from agencies like A.M. Best when comparing plans.
Work with an independent broker to get quotes from multiple insurers and find the best fit for you.
Evaluate the tradeoffs to decide if mortgage protection makes sense for your situation. For most homeowners with a family, the benefits outweigh the downsides.
Some alternatives to traditional mortgage life insurance include:
Compare alternatives to see which approach provides suitable mortgage protection given your budget and needs.
Dying without a mortgage life insurance policy exposes your surviving dependents and estate to several risks:
While no one likes to dwell on the prospect of dying prematurely, having mortgage life insurance provides important peace of mind. Make sure your family is protected.
Mortgage life insurance provides an affordable and straightforward way to secure your home loan while protecting your loved ones. By paying off your remaining mortgage balance if you pass away prematurely, it preserves your estate and gives your family financial security.
Carefully consider your specific needs, compare policies from leading insurers, and get the right amount of coverage for the length of your mortgage. This ensures your beneficiaries can maintain their lifestyle by keeping the family home. With the proper mortgage life insurance coverage in place, you can worry less and enjoy your home more.