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What is Mortgage Life Insurance?

The term “Mortgage Life Insurance” can be used to describe two similar types of insurance:


1) Decreasing Term Life Insurance

With a typical 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.


2) Level Term Life Insurance

A better way to protect your loved ones, and make sure they have a home to live in, is to get a traditional term life insurance policy. You would take out a policy that is enough to cover the cost of your mortgage and its duration.

For example, if you have a 30-year $400,000 mortgage on your home, you would obtain a 30 year term life insurance policy in the amount of $400,000. The great thing about a term level policy, is that the insurance payout amount never goes down - as with a typical mortgage life insurance (decreasing term) - so it stays level for the duration of the policy. This means that if you are towards the end of your term, there will be money left over after the mortgage is paid for. As you can see, this is far superior to a decreasing term policy.

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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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