Policy Types

How to Determine if a Mortgage Life Insurance Policy is the Best Option

Before you determine if a mortgage life insurance policy is your best option, you need to understand the advantages and disadvantages of this policy over other types of insurance.

The Pros and Cons of Mortgage Life Insurance

As a homeowner, you may have concerns about how your family would pay the mortgage if you were to die prematurely or, depending on the policy, become permanently disabled and unable to work. For this reason, you might be considering mortgage life insurance as a way ensure that your home loan will be fully repaid should something happen to you and your income.

But while mortgage life insurance has its advantages, there are some disadvantages as well. Here's what you need to know:

Some mortgage life insurance pros include:

  • The peace of mind knowing that if you were to die tomorrow, your family can afford to remain in their home by having a “free and clear” mortgage.
  • The security that in the event you become permanently disabled or suffer a debilitating and prolonged illness and can't work, you won't have to worry about how you're going to make your house payments.
  • You can generally get a mortgage life insurance policy with little or no underwriting requirements to satisfy and no medical exam. So if you have a preexisting medical condition and have been unable to find an affordable life insurance policy (or have been declined due to your health), mortgage life insurance may be a viable option.

Some mortgage life insurance cons include:

  • Mortgage life insurance is typically a decreasing term life policy. So as you begin to pay down your mortgage and decrease your loan amount, the value of the mortgage life insurance policy also decreases (unlike a regular life insurance policy that provides you with a fixed payout). So while you may start off with a $200,000 policy, that payout will decline as your mortgage is paid down. As the years go by, your life insurance policy becomes smaller, potentially leaving your family with little or even no life insurance benefits towards the end of your policy.
  • With mortgage life insurance, it's your lender who is the policy's beneficiary - not your family. So when you die, the payout goes directly to the lender to repay the mortgage. Yes, your family benefits from having a mortgage-free home, but it won't leave them with any cash to use for other outstanding debts and immediate living expenses. A better way might have been a regular life insurance policy so that your family has control over the payout - not the bank.
  • Generally, mortgage life insurance can be pricy coverage to have compared to a traditional life insurance policy. Because the policy decreases, you'll actually be receiving less cover for your money as time goes by. You may be better served by having a life insurance policy with a level death benefit and a level premium.

You can read more about life insurance products that may be a better fit for you than mortgage life insurance by visiting Protective's Learning Center.

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Learning Center articles may describe services and financial products not offered by Protective Life or its subsidiaries. Descriptions of financial products contained in Learning Center articles are not intended to represent those offered by Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax-related decisions. For information about Protective Life and its products and services, visit www.protective.com.

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