Mortgage Life Insurance
What is mortgage life insurance?
Updated May 16, 2023
Mortgage life insurance is a term life insurance policy that covers the policyholder’s outstanding mortgage payments if they pass away. Though it can keep loved ones from losing their home, it does not pay beneficiaries a death benefit directly. Instead, a mortgage lender receives the death benefit, making them the de facto beneficiary. The term of a mortgage life insurance policy is the same length as an existing mortgage; if you have 20 years left on a 30-year mortgage, then your policy will last 20 years.
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What does mortgage life insurance cover?
Mortgage life insurance solely covers any outstanding mortgage payments you might have if you die, meaning you can’t use it for any other expenses. There are two basic types of mortgage life insurance—decreasing term insurance and level-term insurance.
What are the pros and cons of mortgage life insurance?
Though it’s different from a traditional life insurance policy, mortgage life insurance can give you and your family peace of mind knowing that your mortgage will be paid off if you pass away while you still owe money on it; the payoff would be a mortgage-free home for your loved ones to live in. The policy can allow your family to have a place to live, assuming they can still pay property taxes and other basic costs of owning the home.
On the other hand, a traditional life insurance policy pays out the death benefit to your family if you die, meaning your loved ones would receive a sum of money. But if you have a mortgage life insurance policy, your family wouldn’t get a death benefit if you die during the policy’s term, as the mortgage company becomes the beneficiary. Mortgage life insurance premiums are typically higher than standard policies, and also won’t pay for certain costs of your surviving family such as childcare, future education costs and any other outstanding debts.
To decide whether a traditional or mortgage life insurance policy is right for you and your family, speak to a financial planner.