Life Insurance to Cover a Mortgage

There’s a lot of confusion about what type of life insurance you need to cover a mortgage.

And, to complicate matters, there are many mortgage life insurance products available that confuse matters even further.

It’s important to buy some form of life insurance to cover your mortgage because if you don’t, your surviving family members may not be able to pay for the mortgage and the lender could foreclose on the home.

Most lenders generally want the mortgage amount paid off in full when the principal signatory passes away. The lender may allow the survivor to reapply for a new mortgage afterwards, but each lender has their own policies which vary.

Let’s clear up the confusion so you understand your choices.

What is Mortgage Protection Insurance (MPI)?

Mortgage Protection Insurance, also known as Mortgage Protection Life Insurance, is a product offered through lenders indirectly through a life insurance company, or is sold directly by a life insurance company.

There are variations of these products available. Some products are similar to a decreasing term life insurance policy, while others are a level term type of policy.

Some of the policies available will pay the death benefits as a lump sum while others will pay out death benefits as an annuity to cover the mortgage payments over time. Policies which pay out death benefits as a lump are more expensive than those which pay out as an annuity.

There are also variations of these products which contain attached riders which will also provide coverage for accident and sickness such as if you can no longer work, or to cover the life insurance premiums so coverage will continue. Needless to say, this additional coverage is convenient but is also more expensive.

Also, some policies will make the lender the beneficiary while others will allow you, as the policy holder, to name your own beneficiary. The advantage in the latter is that it allows your beneficiary to use the funds in any manner they choose.

What Type of Mortgage Life Insurance to Buy?

It depends on your situation. If you are young and healthy, you might be better off either buying a level term policy on its own by using an independent life insurance agent because they can find you the best rates. Your beneficiaries can use the payout to either pay the mortgage off and/or use the outstanding balance anyway they need.

You could also opt for a decreasing term policy where the amount of death benefits diminishes over set time increments.

Or, you could opt for a more specific MPI product which offers additional protection for accident and sickness or cover your premiums if you can’t work.  Keep in mind that these types of policies that offer this more comprehensive form of coverage are provided by life insurance riders and that this additional coverage will cost more.

If you are elderly and/or have health issues, you might be better off applying for a life insurance product which does not require a medical exam through either the lender or a private life insurer. The cost of life insurance is more but at least you can feel confident that the mortgage will be covered. Otherwise, if you try to buy a policy on your own you could end up being declined.

We recommend that before you decide, consider speaking to an independent life insurance agent. They can discuss your particular situation and needs. The agent can explain what choices you have and then they can perform the comparison shopping for you to find you the best deal.

Otherwise you will be stuck with what a private lender or a private insurer will charge. You can likely find a much better rate by using an independent agent.

Also remember that you can stagger or layer several life insurance policies together so you have several policies to cover different needs. If you have a policy strictly for you mortgage, you can cancel it when the mortgage is paid off and still have the other policies in force.

And finally, you need to keep in mind what you want for your family and what they will need.

Need Help with Mortgage Life Insurance?

Mortgage life insurance can be a complicated issue especially with so many products available. And, everyone has there own particular needs when it comes not only to life insurance but also for life insurance to coverage a mortgage.

To help you decide, we suggest that you contact the independent brokers at JRC Insurance group today because we can provide you with the advice you need to help you make that crucial decision. 

This post is written by Chris Huntley, a licensed life insurance agent in 48 states. He is director of marketing at JRC Insurance Groups and blogs about life insurance at InsuranceBlogByChris.com.