What is Mortgage Life Insurance?

The term “Mortgage Life Insurance” can be used to describe two different types of insurance. In some cases, the term is used to describe private mortgage insurance, though this isn’t necessarily the same as mortgage life insurance.

Private mortgage insurance, or PMI, is a type of insurance that you are usually required by the lender to obtain if you purchase a home and are paying less than 20% of the value of the home as a down payment. This type of insurance is actually in place to protect the lender because it guarantees the lender receives payment of your mortgage loan if you default on your payments and the lender is unable to resell the home for the amount still owed on the mortgage.

PMI is not the same as true mortgage life insurance. First, mortgage life insurance is in place to protect you and your loved ones. Secondly, it pays out only if you pass away or, depending on the options on your policy, if you fall ill with a terminal or critical illness. It does not cover the cost of your mortgage loan if you default on your mortgage loan payment for any other reasons.

With a mortgage life insurance policy, you pay a pre-determined premium every month for the entire duration of your mortgage loan term. Although the premium does not decrease, the amount of pay out does. This is because the amount of money you owe on your mortgage loan should decrease each year as you continue to pay on it. In essence, the pay out of your mortgage life insurance will simply remain equal to whatever you own on your mortgage loan.

A traditional term life insurance policy can also be used to help pay off a mortgage. To do so, you would have to take out a policy that offers a benefit that is enough to cover the cost of your mortgage. Of course, if you do this, you will need to add additional coverage to your policy in order to provide your loved ones with money to cover other expenses that will need to be cared for in the event of your death.

With a mortgage protection insurance policy, you can rest easy knowing that your mortgage will be paid off if you pass away. This is particularly important if you are married and your spouse will be unable to pay the mortgage each month without the help of your income. By paying off your mortgage in full with mortgage life insurance, your spouse will not have to worry about the possibility of losing the home.

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Purchasing a mortgage life insurance policy can also be a good option if you are not in the best of health and, therefore, you would likely be turned down for other types of life insurance. In many cases, mortgage life insurance polices do not require extensive health examinations in order to receive coverage. In fact, many do not require any examinations at all. So, even if you don’t qualify for other types of life insurance, you can rest easy knowing that your mortgage will be taken care of.

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