Best Places To Get Mortgage Life Insurance

Mortgage life insurance is a type of insurance designed to pay off the remainder of a mortgage after the policyholder's death. It is distinct from traditional life insurance policies, which are not tied to a mortgage, and mortgage protection insurance, which covers mortgage payments in the event of injury, sickness, or unemployment. Mortgage life insurance can be purchased from specialist providers, or through your mortgage lender or a real estate agent.

Mortgage life insurance vs. traditional life insurance

Mortgage life insurance, also known as mortgage protection insurance (MPI), is a type of life insurance that pays off the remaining debt on a policyholder's mortgage if they pass away during the policy term. It is typically purchased from leading insurance companies or directly from a mortgage lender. This type of insurance is designed to provide peace of mind for families, ensuring that they will not be responsible for mortgage payments or lose their home due to foreclosure in the event of the policyholder's death or disability.

Traditional life insurance, on the other hand, offers a more comprehensive form of protection. While it can also be used to cover mortgage payments, it provides a financial safety net for beneficiaries by addressing a range of financial needs that may arise. The death benefit from a traditional life insurance policy can be used by beneficiaries for any purpose, including covering other expenses such as car loans or living costs. This is in contrast to mortgage life insurance, where the benefit is paid directly to the lender to settle the outstanding mortgage balance.

One key distinction between the two types of insurance lies in the stability of benefits over time. With mortgage life insurance, the potential payout decreases over time as the outstanding mortgage balance is gradually reduced. This means that the policyholder's family may receive a lower payout compared to a level-term policy if the original cover amount was the same. In contrast, traditional life insurance provides level cover, meaning the amount of protection stays the same throughout the policy term.

Another difference pertains to the underwriting process. Mortgage life insurance often does not require a medical exam or health questions, making it more accessible to individuals who may not qualify for traditional life insurance due to health conditions or high-risk occupations. However, this convenience comes at a cost, as MPI premiums tend to be higher than those of traditional life insurance for the same balance.

When deciding between mortgage life insurance and traditional life insurance, it is essential to consider your specific needs and circumstances. If your primary concern is ensuring that your loved ones can retain ownership of your home without incurring significant debt, mortgage life insurance can be a suitable option. On the other hand, if you want to provide financial protection for a wider range of expenses, traditional life insurance may be the preferred choice. Additionally, factors such as your budget, mortgage balance, interest rates, and the financial needs of your loved ones should be carefully weighed when making this decision.

Who offers mortgage life insurance?

Mortgage life insurance is a unique form of life insurance designed to pay off the policyholder's mortgage if they pass away during the policy term. It is typically cheaper than a life insurance policy because the amount of cover decreases over time, so the potential payout is less than life insurance, which is fixed. Mortgage life insurance policies generally don't require a medical exam and may not ask health questions, making this policy more accessible to homeowners who don't want to take medical exams for life insurance or want to get coverage more quickly.

There are several ways to buy a mortgage life insurance policy. The first is through your mortgage lender or one of their partner companies. The second is to ask a representative or your real estate agent for a referral to a company that offers an MPI policy. The third option is to buy it through unaffiliated insurers. Since so many parties offer mortgage life insurance, the structure and benefits can vary a lot.

Mortgage protection insurance can also refer to a type of Payment Protection Insurance (PPI) that insures monthly mortgage costs if the policyholder is temporarily unable to work. The maximum payment period is between 12 and 24 months, but it could end sooner if the policyholder returns to work.

Legal & General offers a decreasing life insurance policy as a type of mortgage life insurance.

Aflac does not offer mortgage life insurance, but its term and whole life insurance policies offer payouts beneficiaries can use to help cover mortgage payments or even pay off the mortgage, alongside other expenses.

What are the benefits of mortgage life insurance?

Mortgage life insurance is a type of insurance policy that is specifically designed to cover a mortgage balance if the homeowner dies. It is a term life policy that matches the term of the mortgage and is designed to repay mortgage debts and associated costs in the event of the borrower's death. The death benefit is usually reduced each year to correspond with the amortized mortgage balance outstanding. This type of insurance offers several benefits:

Peace of mind

Mortgage life insurance provides peace of mind that the mortgage will be paid off in the event of the borrower's death. This means that heirs won't have to worry about what will happen to the family home, and the beneficiary will not have to manage the funds once paid out.

No medical exam required

Mortgage life insurance policies typically do not require a medical examination or blood sample, making them accessible to those with pre-existing medical conditions who may be unable to qualify for traditional life insurance.

Living benefits

Some mortgage life insurance policies offer living benefits, which allow policyholders to access money from the policy's death benefit if they are diagnosed with a terminal illness.

Level premiums

Mortgage life insurance premiums are level, meaning they do not change throughout the policy term. This predictability allows for easy budgeting and financial planning.

Customization

Mortgage life insurance policies can be customized with riders, which are add-on coverages that allow policyholders to tailor the policy to their specific needs.

However, it is important to note that mortgage life insurance has limited flexibility as the death benefit goes directly to the lender, and it may be more expensive for the level of coverage provided compared to other types of life insurance policies.

What are the drawbacks of mortgage life insurance?

Mortgage life insurance is a unique form of life insurance designed to pay off the policyholder's mortgage if they pass away during the policy term. While it can be a good option for some, there are several drawbacks to be aware of before purchasing a policy.

Firstly, mortgage life insurance lacks the cash value growth component of permanent life insurance. This means it cannot be used as a wealth-building vehicle while the policy is active. The potential payout from mortgage life insurance to cover a repayment mortgage reduces over time, resulting in a lower payout compared to a level-term policy. This decrease in coverage means that the cost per dollar of coverage increases over time, as premiums are level while the death benefit decreases. As a result, mortgage life insurance can be expensive for the level of coverage provided, especially for healthy individuals who may be paying more for less coverage.

Another drawback is that mortgage life insurance policies generally do not require a medical exam, which can make them more accessible to some homeowners. However, this also means that the average premium is higher than a traditional life insurance policy for the same balance. Additionally, mortgage life insurance policies have limited payout options. The payout only goes towards the mortgage debt, and beneficiaries do not receive the proceeds. Therefore, this policy may not work if your beneficiaries need help covering other costs, such as taxes, bills, or funeral expenses.

Furthermore, mortgage life insurance might not be the best option if you are close to paying off your mortgage or have other financial obligations. It is important to carefully examine the terms, costs, and benefits of a mortgage life insurance policy before purchasing, as there may be alternative policies that better suit your needs and provide more financial protection for your family.

How much does mortgage life insurance cost?

The cost of mortgage life insurance depends on several factors, including age, gender, coverage amount, lifestyle choices, height, weight, and other health conditions. Generally, mortgage life insurance is more expensive than standard life insurance rates, and the bigger the mortgage, the more expensive the insurance. It is also important to note that rates increase with age, so it is advisable to get mortgage life insurance early.

Mortgage life insurance, also known as mortgage protection insurance, is a unique form of life insurance designed to pay off the policyholder's mortgage if they pass away during the policy term. This type of insurance helps beneficiaries eliminate significant debt and gives them access to more equity in the home. It is typically cheaper than a life insurance policy because the amount of cover decreases over time, resulting in a lower potential payout compared to fixed life insurance policies.

While mortgage life insurance provides peace of mind, it is important to weigh the costs against the benefits. Term life insurance, for example, can be a more cost-effective alternative, offering more flexibility and affordability for the same or greater coverage. In addition, mortgage protection insurance may not be necessary if you are close to paying off your mortgage or if your loved ones can afford to live without your income.

The cost of mortgage life insurance can vary significantly, and it is recommended to speak to a professional to determine the best option for your specific circumstances. Online calculators and comparison tools can also help you estimate the cost and find the most suitable policy for your needs.

Frequently asked questions