Older People: Getting Mortgage Life Insurance

Mortgage life insurance is a type of insurance policy that pays off your mortgage debt if you die. While this policy can keep your family from losing their home, it may not always be the best option. This is because the policy's beneficiary is the mortgage lender, not your family, meaning your loved ones won't receive a death benefit. Additionally, mortgage life insurance policies are generally more expensive than term life insurance policies and offer less flexibility. However, mortgage life insurance can be a good option for those with severe health problems who may not qualify for term life insurance, as it doesn't take health into account when setting rates. So, can an older person get mortgage life insurance? The answer is yes, but there may be some restrictions and limitations based on age.

Who is eligible for mortgage life insurance?

Mortgage life insurance is available to homeowners of all ages, but it may be more beneficial to older people who are more likely to be offered coverage. This is because, as your health declines with age, it becomes more difficult to qualify for a standard term life insurance policy.

There are no legal limits to the number of life insurance policies you can own, and many people already have life insurance coverage through their employer. However, each policy needs to be underwritten and may impose a limit on the face value or death benefit.

Mortgage life insurance is a type of insurance policy offered by banks affiliated with lenders and by independent insurance companies. It is designed to pay off your mortgage when you die, ensuring your loved ones won't lose their home. The policy's length will coincide with the number of years left on your mortgage, and the premiums remain level during the term. However, the policy's value decreases as your mortgage decreases.

While mortgage life insurance does not require a medical exam, it is generally more expensive than a term life insurance policy for the same coverage amount. This is because the policy assumes you are a higher risk. If you are in good health, you can get more value from a term life insurance policy.

In addition, mortgage life insurance may not be available after a certain age. Some insurers offer 30-year mortgage life insurance policies to applicants 45 or younger and only offer 15-year policies to those 60 or younger.

When considering mortgage life insurance, it is important to remember that the beneficiary of the policy is typically the mortgage company, not your family. This means that, in the event of your death, the payout goes directly to the lender to cover the remaining mortgage balance, and your family does not receive any proceeds. If you want your family to have more flexibility in how the insurance payout is used, a standard term life insurance policy may be a better option.

How does mortgage life insurance work?

Mortgage life insurance, also known as mortgage protection insurance, is a type of insurance that pays out a large enough sum to clear the debt in the event of the policyholder's death. It is designed to provide financial security to loved ones and ensure that the family home is protected. The policy's length will coincide with the number of years the policyholder has to pay off their mortgage.

Mortgage life insurance is usually sold by the mortgage lender or an affiliated insurance company. If bought from the mortgage lender, the premiums can be rolled into the loan. The mortgage lender is the beneficiary of the policy, not the policyholder's spouse or other family member. This means that the insurer will pay the remaining balance on the mortgage to the lender if the policyholder passes away.

The cost of mortgage life insurance depends on factors such as the state of the policyholder's health, the interest rate, the term, and the amount owed on the mortgage. The price paid for insurance, known as the "premium", can be guaranteed or renewable. Guaranteed premiums remain the same over the life of the policy, while renewable rates may increase in the future.

Mortgage life insurance is typically sold as a "decreasing-term" policy, which means that the payout will reduce over time as the policyholder pays off their mortgage. This type of insurance is ideal for those with repayment mortgages, where the amount borrowed is gradually repaid with interest over time.

There are two main types of mortgage cover: decreasing term and level term. Decreasing term insurance is the most common and usually the cheapest option, as the payout reduces in line with the mortgage balance, while the monthly payments stay the same. Level term insurance provides a fixed payout for the length of the policy and tends to be more expensive.

When purchasing mortgage life insurance, it is important to opt for ""guaranteed premiums" to ensure the monthly cost is fixed. It is also crucial to disclose all health conditions and risks when applying for the policy to ensure that the policy is suitable and will pay out if needed.

What are the pros and cons of mortgage life insurance?

Mortgage life insurance, also known as mortgage protection insurance, is a life insurance policy that pays off your mortgage debt if you die. While this policy can keep your family from losing their home, it has its pros and cons.

Pros

Mortgage life insurance offers:

• Peace of mind that your mortgage will be paid off, and your family won't lose their home.
• No medical exam is required, and there may be no health questions either. This makes it a good option for those with medical conditions who may struggle to get traditional life insurance.
• You may be able to add life insurance riders to your policy, such as living benefits or a return of premium.

Cons

However, there are some significant drawbacks:

• Your loved ones won't receive a death benefit payout; the money goes directly to the mortgage lender. This means they won't be able to use the funds for other needs, such as final expenses, future education costs, or childcare.
• Mortgage life insurance is generally more expensive than term life insurance for the amount of coverage you get, especially if you are in good health.
• The payout of mortgage life insurance usually matches your mortgage balance as it decreases, but your premium stays the same.
• It can be challenging to find accurate quotes and compare policies for mortgage life insurance.

How does mortgage life insurance differ from other types of insurance?

Mortgage life insurance is a type of insurance that is designed to pay off your mortgage in the event of your death. It is typically offered by lenders or their partner companies, although it can also be purchased through unaffiliated insurers. The key difference between mortgage life insurance and other types of insurance is that mortgage life insurance designates your mortgage lender as the policy's beneficiary, meaning that the death benefit is used to wipe out the remaining mortgage debt rather than being paid to your loved ones. This ensures that your family will not lose the home, but it also means that they will not receive any death benefit funds to cover other expenses.

Mortgage life insurance policies usually have a specified coverage period, often matching the term of your mortgage, and the death benefit can be structured in a few different ways. One option is a decreasing death benefit, which decreases over time to match the rate at which the mortgage is paid off. Another option is to tie the death benefit to the outstanding mortgage principal, which will also decrease over time but will reflect if you pay off your mortgage faster or slower than expected. Alternatively, the death benefit can remain level over the life of the policy, which may be suitable for interest-only mortgages.

Mortgage life insurance is generally easier to qualify for than other types of insurance and does not usually require a medical exam. It may be a good option for those with health conditions that make other forms of insurance too expensive or inaccessible. However, it is typically more expensive for healthy homeowners since health is not a factor in pricing. Additionally, mortgage life insurance may be tied to your home and lender, so if you move or change lenders, you may need to purchase a new policy.

In contrast, personal life insurance offers more flexibility as the death benefit can be used by your beneficiaries for any purpose, such as paying off other debts, covering childcare costs, or funding education. Personal life insurance is not linked to your mortgage and can be purchased for a length of time unrelated to the amortization of your mortgage. The coverage amount is typically not linked to the declining balance of your mortgage and will not decrease over time. Personal life insurance also allows for significant adjustments to the policy without heavy fees, making it more adaptable to changing financial circumstances.

Another type of insurance to consider is critical illness insurance, which provides a one-time tax-free payment upon diagnosis of a serious condition. This can be used to pay off medical expenses, your mortgage, or other debts.

How do I get mortgage life insurance?

Getting mortgage life insurance is a good idea if you have dependants, such as a family, living in the home you bought with the mortgage. This is because, if you die, your family could fall behind on mortgage payments and the home could be repossessed. However, it may not be necessary if you don't have any dependants, as no one else will need to continue making the mortgage repayments.

Mortgage life insurance is usually sold by the mortgage lender, an insurance company affiliated with your lender, or another insurance company. If you buy it from your mortgage lender, the premiums can be rolled into your loan. You can also get it from your mortgage adviser, a financial adviser, or directly from an insurer.

The best mortgage life insurance cover will depend on your individual circumstances. For example, if you're slightly older or have a pre-existing medical condition, you might have to pay more for your policy. If you're younger with no medical problems, you could get the same cover at a cheaper price.

The amount you pay for this type of insurance depends on factors such as your health and medical history, lifestyle factors (e.g. whether you smoke), and the mortgage amount owed, term, and interest rate.

You can either get a decreasing or level term life insurance policy. Level term is the most common, but if the payout is intended for your mortgage, then decreasing could be the better option. The payout for decreasing life insurance goes down over the duration of your cover, usually in line with your mortgage balance, and the terms of both generally match up. This means your policy effectively covers your mortgage payments if you pass away before paying the sum off. A level term policy ensures the payout remains the same regardless of when you pass away.

You can also add critical illness cover to your life insurance, which will ensure you can keep paying your mortgage if you are unable to work due to illness.

Frequently asked questions