Is Mortgage Life Insurance Worth it?
Buying a home is a major life event that should make you consider buying life insurance if you haven’t already done so. At some point during your home purchase, you will probably be presented with an opportunity to buy mortgage life insurance. It may be by the lender or it could be by an outside company that solicits you because they know that you just bought a house. But is buying mortgage life insurance worth it?
First off, what is mortgage life insurance? It should not be confused with private mortgage insurance (PMI) which protects lenders against borrower default. PMI is usually required if you are unable to put 20% down on your home. Mortgage life insurance is used specifically to pay off your mortgage. In most cases the lender is the direct beneficiary. The insurance payment is usually lumped into your mortgage payment and the coverage decreases over time as your mortgage gets paid down.
The benefit to this type of insurance is that there is minimal underwriting. If you have preexisting health issues that would preclude you from a traditional individual life insurance policy, mortgage life insurance might be a viable option.
There are a few drawbacks to using mortgage life insurance though. The first issue is that it’s usually tied directly to the mortgage with the bank or lender being the direct beneficiary. If you pass away, only your mortgage is paid off and no other debts. Your beneficiaries might suffer by not having the flexibility to pay other more pressing debts. Another issue is that the coverage is expensive. Anytime you have a product with limited or no underwriting, there is an added cost. One more thing to mention is that if you refinance your mortgage in the future, you will have to buy new coverage. The cost of new coverage will most likely increase since you will be older. Even though mortgage life insurance is meant to pay your mortgage and relieve your loved ones of this debt at your death, it is really just another way that your bank or lender tries to protect itself.
If you are in good health, in most cases you will be much better off purchasing a traditional level term policy to cover your mortgage. Traditional level term usually costs much less that mortgage life insurance and can provide a higher level benefit to protect debts beyond your mortgage. Traditional term insurance also stays intact for the entire term. You can refinance your home as many times as you want and you will never have to reapply for traditional term insurance like you would with mortgage life insurance. It should also be noted that it might not make sense for your beneficiaries to pay off the entire mortgage at your death. Traditional level term insurance gives your beneficiaries the flexibility to use the death benefit to meet their specific needs.
Do you need to cost effective coverage for your mortgage? We can help! Let us show you how easy and affordable it is to get covered. We have access to over 40 insurance companies and will use all of our resources to get you the best coverage option available. Please feel free to give us a call at (888) 687-9444 or email us at info@archstoneagency.com if you have any questions.
Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients. We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage. Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com. You can also visit our website at www.archstoneinsurance.com.
