Comparing Mortgage Life Insurance to Term Life Insurance

Do you need mortgage life insurance? If you have purchased a house, you were offered mortgage life insurance, which is also known as mortgage protection insurance. The basic idea behind mortgage life insurance is that it will pay off your mortgage when you die. While that sounds like a good idea, mortgage life insurance is…
Advertising Disclosure.

Advertiser Disclosure: The Military Wallet and Three Creeks Media, LLC, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet. For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked; however, this compensation does not affect how, where, and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner,” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings, or lists are fully comprehensive and do not include all companies or available products.

The Military Wallet and Three Creeks Media have partnered with CardRatings for our coverage of credit card products. The Military Wallet and CardRatings may receive a commission from card issuers.

Opinions, reviews, analyses & recommendations are the author’s alone and have not been reviewed, endorsed, or approved by any of these entities. For more information, please see our Advertising Policy.

American Express is an advertiser on The Military Wallet. Terms Apply to American Express benefits and offers.

Do you need mortgage life insurance?

If you have purchased a house, you were offered mortgage life insurance, which is also known as mortgage protection insurance. The basic idea behind mortgage life insurance is that it will pay off your mortgage when you die. While that sounds like a good idea, mortgage life insurance is usually not the best life insurance option for most people. Shop around and you will probably find term-life insurance is the best form of life insurance for many situations.

Four Reasons Why Mortgage Life Insurance is Not a Good Idea

Your mortgage broker will give you many reasons why you should buy mortgage protection insurance, but let’s be clear on one thing – regardless of what anyone else tells you, mortgage life insurance is there for the benefit of the lender, not you. In fact, if you want to decline mortgage life insurance you will probably have to sign multiple waivers and listen to the reasons why you should opt for purchasing mortgage life insurance. This is designed to get you to change your mind.

Here are four reasons why you don’t need mortgage life insurance:

1. Mortgage life insurance is a decreasing benefit. Mortgage life insurance benefits are designed to pay off the outstanding balance on your mortgage, so the pay out benefits decrease as you pay down the principle on your loan. Some policies have a set payout for the first five years, but decrease after that. If you buy this policy, your payments remain the same while the benefit decreases.

2. The lender is the beneficiary. If you die the money goes straight to the lender. Your heirs do not receive one penny of it. It is true they will have a home that is paid in full, but that may not be the best use of the funds for their situation at the time.

3. You don’t get to choose how or where the funds are spent. The money goes straight to the mortgage. Your heirs may have higher interest debts or other needs that are more important than paying off the mortgage right away. Mortgage life insurance does not give them the option to choose.

4. Mortgage life insurance can be expensive. Mortgage life insurance premiums are often on par with term life insurance premiums at the policy inception, but remember, this is a decreasing benefit and you end up paying more for your coverage as time goes on.

Comparing Term Life Insurance to Mortgage Life Insurance

Looking at the four disadvantages listed above, term life insurance appears to be a clear winner almost every time, provided you buy encough life insurance to cover all your needs.

1. Term life pays out at a fixed rate and is not a decreasing benefit. Your monthly premiums and the payout will remain the same as long as the original policy is in place.

2. Term life beneficiaries are named in the policy. You can designate anyone to be the beneficiary of your term life policy; it is not automatically assigned to your bank, mortgage lender or other creditors.

3. Your beneficiaries choose how to use the money. Flexibility is the key to term life insurance and your beneficiaries do not have to immediately repay the mortgage upon your death.

4. Term life insurance rates are often cheaper for the amount of coverage. Life insurance premiums between the two policies are often similar near the beginning of your mortgage, but as your outstanding loan balance decreases, you are paying more for less coverage. Your term life insurance premiums will remain the same.

When it Might Make Sense to Purchase Mortgage Protection Insurance

The main benefit to mortgage protection insurance is that it can often be purchased with minimal underwriting and no medical examination or blood tests. This makes mortgage life insurance a good option if you have a pre-existing medical condition and may not be eligible for affordable term life insurance. You can also look into guaranteed issue life insurance. Note: Read the terms and conditions thoroughly before signing your paperwork to fully understand your coverage.

Term Life vs. Mortgage Life: Term is the Winner

As you can see, term life insurance almost always trumps mortgage life insurance. As with every money-related issue, be sure to read and understand your policy before signing and shop around for insurance rate quotes before purchasing any insurance product.

Note: Veterans should consider other available options as well, including the Veteran’s Mortgage Life Insurance Program, which you may be eligible for. In all cases be sure to buy enough life insurance for your needs.

About Post Author

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

Posted In:

Reader Interactions

Leave A Comment:

Comments:

About the comments on this site:

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

The Military Wallet is a property of Three Creeks Media. Neither The Military Wallet nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. of Veterans Affairs, the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at va.gov. The content offered on The Military Wallet is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.

Advertiser Disclosure: The Military Wallet and Three Creeks Media, LLC, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet. For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked; however, this compensation does not affect how, where, and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner,” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings, or lists are fully comprehensive and do not include all companies or available products.

Editorial Disclosure: Editorial content on The Military Wallet may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of  The Military Wallet.

Information from your device can be used to personalize your ad experience.