Haven Life Mortgage Insurance: What You Need To Know

When you buy a house, you will likely receive mailers urging you to purchase mortgage life insurance. This type of insurance is designed to protect your mortgage from falling to your co-signer in the event of your death. However, it's important to understand the differences between mortgage life insurance and term life insurance to determine which option is best for you. Mortgage life insurance, also known as mortgage protection insurance, is easy to obtain and does not typically require a medical exam. In contrast, term life insurance offers more flexibility, allowing you to choose a coverage amount and term length that meets your family's needs. While both options have their advantages, term life insurance often provides better value, as it can be more affordable and tailored to your specific situation.

Mortgage life insurance vs. term life insurance

When you buy a house, you're likely to start receiving mailers encouraging you to purchase mortgage life insurance. This can be confusing, especially as a first-time homeowner. So, what's the difference between mortgage life insurance and term life insurance, and which one is right for you?

Mortgage life insurance, also known as mortgage protection insurance, is a type of insurance that pays off your outstanding mortgage balance if you die. It is usually purchased when you buy your home or soon after and lasts for the same number of years as your mortgage. The payout from a mortgage life insurance policy goes directly to the lender to pay off the remaining mortgage balance. This means that your loved ones will not receive any money from the policy, although they will benefit from having the mortgage paid off.

Term life insurance is sold by insurance companies to provide a lump-sum benefit to your beneficiaries in the event of your death. The beneficiaries can use the money from a term life insurance policy in any way they want, such as paying off the mortgage, covering debts, paying living expenses, or replacing lost salary. Term life insurance is more flexible than mortgage life insurance, as it can be used for more than just paying off the mortgage. Additionally, term life insurance is portable, meaning it remains in place even if you move, pay off your mortgage, or change your mortgage lender.

Key differences between mortgage life insurance and term life insurance:

• Beneficiaries: With mortgage life insurance, the mortgage lender is the sole beneficiary, whereas with term life insurance, you decide who the beneficiary is.
• Coverage: Mortgage life insurance coverage decreases over time as you pay down your mortgage, while term life insurance coverage typically remains the same.
• Flexibility: Term life insurance is more flexible than mortgage life insurance, as it can be used for more than just paying off the mortgage.
• Medical exams: Mortgage life insurance typically does not require a medical exam, while term life insurance usually requires a medical questionnaire and exam.
• Cost: Mortgage protection insurance is usually more expensive than a medically underwritten term life insurance policy.
• Portability: Term life insurance is portable, meaning it remains in place even if you move, pay off your mortgage, or change your mortgage lender. Mortgage life insurance, on the other hand, is tied to your home and mortgage and ends if you sell your home, pay off your mortgage, or change lenders.

Both mortgage life insurance and term life insurance can provide valuable protection for your home and loved ones. Mortgage life insurance is a good option if you want the convenience of having the mortgage paid off in the event of your death, without having to worry about medical exams or qualifying for coverage. However, term life insurance offers more flexibility, as it can be used for more than just paying off the mortgage, and it allows you to choose the beneficiary. Additionally, term life insurance is often more affordable than mortgage protection insurance. Therefore, for most people, term life insurance is a better value than mortgage protection insurance.

Pros and cons of mortgage protection insurance

Pros of Mortgage Protection Insurance:

• Guaranteed acceptance: Most MPI policies are issued on a "guaranteed acceptance" basis, which is advantageous for individuals with health conditions who would otherwise pay high rates for life insurance or struggle to obtain coverage.
• No underwriting required: MPI plans don't usually require underwriting because most policies don't need the policyholder to submit a medical exam to qualify for coverage.
• Peace of mind: MPI provides peace of mind for you and your family, ensuring that your mortgage payments are covered if you pass away or become disabled.

Cons of Mortgage Protection Insurance:

• Extra monthly payment: MPI requires an extra payment every month, which can be a burden on your budget.
• Limited payout options: If the policyholder passes away, the MPI payout only covers mortgage debt and cannot be used for other expenses like taxes, bills, or funeral costs.
• Alternative policies may be preferable: Traditional life insurance policies may be a better option if you want an insurance policy that provides a more comprehensive financial safety net for your family.
• More expensive for healthier individuals: MPI is typically more expensive than medically underwritten term life insurance, especially for younger and healthier individuals.
• Coverage decreases over time: The MPI payout amount declines as you pay down your mortgage, but the premium payments remain the same.

How mortgage life insurance works

Mortgage life insurance, also known as mortgage protection insurance, is a type of life insurance that pays off your outstanding mortgage balance if you die. It is designed to protect your mortgage from falling to your partner or co-signer in the event of your death. The policy is typically purchased when you buy your home or soon after and lasts for the same number of years as your mortgage.

Mortgage life insurance is usually sold by insurance agencies affiliated with mortgage lenders or by independent insurance companies that obtain information about your mortgage from public records. The terms and conditions can vary, but generally, if you die during the policy term, the lender will receive a payout equal to the amount you owe on your mortgage. As you make monthly mortgage payments, the outstanding balance decreases, and the death benefit on the policy decreases accordingly. However, some insurance companies offer a level death benefit, where the payout remains the same regardless of when the insured person dies.

One advantage of mortgage life insurance is that it is easy to obtain, and anyone can buy a policy. Typically, no medical exam is required, making it accessible to those with pre-existing conditions or illnesses that may otherwise disqualify them from traditional life insurance. Additionally, mortgage life insurance can be a good supplement to existing life insurance coverage, ensuring that your loved ones can use the payout from your other policies for expenses beyond just the mortgage.

However, there are also some disadvantages to consider. Mortgage protection coverage decreases over time as you pay down your mortgage principal. The coverage amount is typically limited to the amount of your mortgage, and the length of the coverage is restricted to the term of the loan. Additionally, the death benefit is paid directly to the lender, giving your family no choice in how the funds are used. Mortgage life insurance is also generally more expensive than medically underwritten term life insurance.

Overall, while mortgage life insurance can provide peace of mind and protect your loved ones from the financial burden of your mortgage in the event of your death, it is important to weigh the pros and cons carefully before deciding if it is the right choice for your situation.

Advantages and disadvantages of mortgage life insurance

Advantages of Mortgage Life Insurance

Mortgage life insurance is easy to get. Anyone can buy a policy, and typically no medical exam is required in the underwriting process. This is especially helpful for someone with a pre-existing condition or an illness that either disqualifies them from other types of life insurance or pushes their life insurance rates to an unaffordable level.

If the policy offers affordable premiums, mortgage life insurance also might be a good way to supplement your other life insurance coverage. If you have a policy in place to pay off your mortgage balance, your loved ones can then use the payout from your other life insurance policy toward other expenses.

Disadvantages of Mortgage Life Insurance

For many buyers, the mortgage life insurance payout amount declines over time. If you’re wondering whether you still have to pay the same premium payments every month for a smaller face value, yes, you do if it has level premiums. That means the amount you pay every month does not change even if the value of the policy goes down.

Mortgage protection insurance is usually a type of simplified issue life insurance coverage, which means you don’t have to undergo a medical exam and the underwriting process is less precise. Typically, the less an insurance company knows about you, the more risk they are taking on by insuring your life. Because of this added risk, mortgage life insurance is usually going to be more expensive than a medically underwritten term life insurance policy.

Some mortgage life insurance policies will only pay a death benefit if you die from an accident, similar to accidental death insurance. Regular life insurance has fewer exclusions than mortgage life insurance on whether a policy will pay out death benefits.

A mortgage protection life insurance payout (called a death benefit) is usually paid directly to the mortgage lender. Therefore, the proceeds of a policy cannot be used as your family chooses. Generally, with a life insurance policy, you have coverage in place so that your loved ones will have a financial safety net that can be used however they need or wish. With mortgage protection insurance, your family usually has no choice in how the funds are used as the money will go directly to the lender to pay the mortgage balance.

Mortgage life insurance vs. private mortgage insurance

When you buy a house, you are likely to receive mailers urging you to purchase mortgage life insurance. This can be confusing, especially when you consider the option of private mortgage insurance (PMI). So, what's the difference between the two?

Mortgage Life Insurance

Mortgage life insurance, also known as mortgage protection insurance (MPI), is a type of life insurance that pays off your outstanding mortgage balance if you die. It is usually purchased when you buy a home or soon after and lasts for the same number of years as your mortgage. The death benefit is typically the amount you owe on the mortgage, though some companies offer a level death benefit, which remains the same regardless of when the insured person dies.

Mortgage life insurance is easy to obtain, and anyone can buy a policy. Typically, no medical exam is required, which is especially helpful for those with pre-existing conditions. It may also be a good supplementary option to other life insurance coverage. However, mortgage life insurance policies are generally less flexible than term life insurance policies, and the coverage amount decreases as you pay down your principal. The coverage timeframe is limited to the length of your mortgage, and the death benefit is paid directly to the lender.

Private Mortgage Insurance (PMI)

PMI is designed to protect the lender, not the homeowner. It reimburses the mortgage lender if you default on your loan and your house isn't worth enough to repay the debt in full through a foreclosure sale. It has nothing to do with job loss, disability, or death, and it won't pay your mortgage if any of these events occur.

PMI is required when taking a conventional loan with a down payment of less than 20%. It usually costs around half of 1% of the loan amount, though this can vary. While it increases your monthly mortgage payments, PMI allows borrowers to buy a home with a smaller down payment. It is also temporary and can be cancelled once you reach 20% equity.

Mortgage life insurance and private mortgage insurance serve different purposes. Mortgage life insurance is a form of life insurance that protects your loved ones by paying off your mortgage balance if you pass away. On the other hand, private mortgage insurance is not a form of life insurance; instead, it safeguards the lender in case of the borrower's default. While mortgage life insurance provides peace of mind for homeowners, PMI is required by lenders to mitigate their risk when borrowers have a smaller down payment.

Frequently asked questions