If you are in the process of buying a home, or even just getting a home equity line of credit, it probably won’t be very long before you start to receive a ton of mortgage protection insurance offers in the mail. (I personally received over 20 such offers, in a matter of months!)
So what is Mortgage (Protection) Insurance?
Sold by mortgage lenders and insurance companies, mortgage life insurance (sometimes called mortgage protection insurance) pays off your mortgage loan (and only your mortgage loan) if you die with a balance. Generally mortgage protection insurance is really nothing more than a term life insurance policy for the amount of your mortgage with the added words “Mortgage Protection” in front of Insurance and it would pay off your home loan, if you die with a balance.
More specifically, mortgage (protection) insurance is simply a term life policy that is designed to cover your mortgage if you die during the mortgage term length. For example, if you have a 30 year mortgage you can purchase a 30 year term mortgage insurance policy that covers the amount owed on your mortgage, ensuring that family left behind will be able to pay off your home and continue to live there.
Some of the benefits of choosing a "Term Life Insurance" policy in place of a Mortgage Protection Insurance (MPI) policy are:
- You can choose the death benefit amount yourself, which includes all your expenses up to your coverage limit. (Allowing you to meet all your family’s needs including future income, rather than just your mortgage balance!) Keep in mind with many mortgage protection insurance policies, the death benefit steadily declines to match the mortgage balance. With most term life insurance policies they are set up with a fixed (level) death benefit amount!
- Term life insurance gives you more flexibility, by allowing you to chose your beneficiaries. Those beneficiaries can use the money however they choose, not just to pay off the mortgage. (However on the other hand, with many mortgage protection life policies, the benefit is paid directly to your lender, NOT to your family.)
- Term life insurance generally gives you more bang for the buck by often being less expensive, depending on your health, etc. The majority of mortgage life insurance policies don’t require applicants to go through a life insurance medical exam for underwriting purposes. This may sound convenient, but you will pay for the privilege of not providing health information. The more insurance companies know about your medical history, the more accurately they can quote coverage, which translates into lower rates for many term life applicants.
- Lastly, term life insurance can extend past the length of your mortgage. For example, if you get a 15 year mortgage, depending on your age, you may still qualify for a 30 year term life insurance policy.
Note: Don’t get confused with private mortgage insurance, (PMI), which is another product you might encounter during the home buying process. PMI pays the lender, NOT YOU OR YOUR BENEFICIARIES, if you default on the loan for any reason. You’re generally required to purchase PMI if you put less than 20% down when buying a home. The cost is factored into your monthly mortgage payment.
Note: Life Insurance information can be confusing to many people. As an "independent licensed agent" I can explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose a life insurance policy, from many choices of different insurance companies, that you feel fits your needs. Plus if you choose to work with me you will have personalized service by a local agent that can shop premium quotes for you. If you would like my assistance to discuss and/or start the process of getting you insured please call me at 941-404-5334.
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