Life insurance cover Mortgage
Mortgage life insurance, also known as mortgage security insurance, is a life insurance approach that pays our mortgage debt if we die. While this policy can keep our household from renouncing the home, it is not always the best life insurance option.
Buying a new residence is an exciting time. However thrilling as it may be, many decisions come with purchasing a new home. One decision may ponder whether should purchase mortgage life insurance.
What is mortgage life insurance?
Mortgage life insurance helps you repay mortgage debt in case of your untimely demise. It is different from traditional life insurance. With a conventional life insurance policy, the beneficiary gets the death benefits when the policyholder passes away.
The beneficiary only gets the benefit with mortgage life insurance if you pass away with an unpaid mortgage. In this insurance policy, the death benefit reduces each year to correspond to the remaining mortgage. You have to name the mortgage lender as the beneficiary.
Types of mortgage life insurance
Mortgage life insurance has two types.
Decreasing term insurance: This mortgage insurance reduces in correspondence with an outstanding mortgage. There comes a time when its balance becomes zero.
Level term insurance: In this type of mortgage insurance, the balance does not fluctuate. It is best for borrowers with an interest-only mortgage.
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What is the primary advantage of mortgage life insurance?
The primary advantage is that your family will have a roof even if you pass away without settling the mortgage debt. You will die in peace that your family lives in a safe place. You don’t receive traditional life insurance benefits unless you pass away. But this policy ensures that you get the specified help if you can’t work anymore due to disability. It helps you settle the liability.
Mortgage life insurance is also easier to secure. You can qualify for this insurance without any hassle. The application process is relatively straightforward. Additionally, you can cancel the policy within 30 days with a complete refund.
What are the disadvantages of mortgage life insurance?
Even though it seems like a safe way to settle your mortgage, it comes with drawbacks. These include:
Expensive for healthy individuals
You can easily buy mortgage life insurance. It does not require you to take a medical test. So, the insurance company has no idea about your life expectancy. For this reason, it comes at a high price.
If you are in sound health, you should go for term life insurance. It offers more value at a comparatively lower cost.
You purchase mortgage life insurance when you buy a new home. At that time, you see it as a quick solution. For the time, you feel like you have gotten rid of a heavy burden. But as the time passes, your financial priorities change. However, this insurance policy offers no flexibility. Ultimately the money goes to the mortgage lender.
With term life insurance, your family has the opportunity to spend money on their more preferential needs.
What if you move out of your current home?
You cannot move the mortgage life insurance. The policy terminates when you pay off the mortgage and sell the house. It makes you lose your money. So, make sure that you understand the terms and conditions.
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