Life insurance provides financial assistance for your family after your death. With it, your family can pay your final expenses, repay debt or save for college. It's also beneficial for repaying the mortgage, which allows your family to stay in their home. As an alternative to a term or whole life insurance policy, consider Mortgage Life Insurance that's designed specifically to pay off your mortgage. Learn the pros and cons of this life insurance option before you buy it.
What is this coverage?
This type of policy pays off your mortgage if you die, become disabled, or contract a life-altering disease that prevents you from earning a living. When you complete your mortgage paperwork, you will often be given the option to apply for this coverage; if you decline it, lenders typically require you to sign waivers confirming you opted out.
Advantages
- You give your family peace of mind when you purchase this coverage. With it, they won’t have to struggle to pay for their home.
- No medical exam is required. Preexisting medical conditions may prevent you from qualifying for traditional life insurance, but you can buy this coverage regardless of your health.
- This coverage can activate even if you don't die. Traditional life insurance policies typically only pay a death benefit, while mortgage-focused coverage may include provisions that help if you suffer an illness or injury that prevents you from working.
Disadvantages
- A Term Life Insurance policy may be cheaper than this coverage, so compare costs and benefits before deciding.
- Mortgage-focused policies cover only the mortgage balance. Your family cannot choose how to use the funds, which they may need to repay other debt, afford college, or cover everyday living expenses.
- The benefit typically decreases over time as you pay down the mortgage. Because this coverage is designed to pay the mortgage, you won't need as much protection as your principal balance declines; a traditional life insurance policy can keep its value for the policy term or as long as premiums are paid.
With this list of pros and cons, you can decide if this coverage is a wise investment for your family. Consider options such as Individual Life Insurance when comparing policies, and Talk to your insurance agent about your family's financial needs as you choose the best life insurance option for you.
Frequently Asked Questions
Who does this type of policy help?
It is designed primarily to protect a borrower's family by paying off the mortgage balance if the borrower dies or suffers a covered disability.
Do I need a medical exam?
Many mortgage-focused policies do not require a medical exam, which can make them accessible to people with health issues who might not qualify for other policies.
Can my family use the payout for things other than the mortgage?
Often the benefit is restricted to the mortgage balance, so family members may not have flexibility to use funds for other expenses.