Will a family have trouble paying off their mortgage on their home if they lose the income of their primary earner? The mortgage protection offered by a mortgage life insurance policy does away with this threat because it guarantees to pay off the outstanding amount on your mortgage if you die. Sounds like a good idea doesn’t it? However in this brief article I can explain to you why there might be better strategies that you can use to make sure that your loved ones have their financial needs taken care of in the event of your passing. If you still think you want a mortgage insurance policy I will also tell you the one place you don’t want to buy it.

When it comes to protecting your family, more has to be better, right? Remember though, that your mortgage payment is only a small fraction of your monthly expenses. Another way to approach it is to look at how much total income they would have to replace to maintain their standard of living if you were gone, and then buying enough insurance to meet that need. The fact is that paying off the mortgage entirely might not even be the smartest thing to do financially- what if your family wanted to sell the house? At any rate, putting funds from an insurance payout towards other expenses might make more sense. Mortgage life insurance would remove some flexibility in this case. Paying the same premiums into a term life policy would restore that flexibility.

Rather than purchasing mortgage life insurance cover, really consider purchasing a return of premium term life policy. The policy can be purchased for the same term as the mortgage itself such as 20, 25 and 30 year plans. If you outlive the term policy, which statistically is likely, you get all your premiums back, without a tax liability. By the way, ‘mortgage term life’ insurance is something different altogether: it is like MI, and is sold as a cheaper alternative to it, but if you do not die within a given time, NO benefit is paid and the mortgage is not paid off either. Buyer beware.

If mortgage insurance still seems like something you want, the financial institution that you don’t want to buy from is the bank that provided your mortgage loan. Probably the biggest reason why this is the case is that you can be pretty sure that they will try to overcharge you because of the one-stop shopping convenience of it.

The bottom line is that you would be well served to do just a little research and buy yourself a term life policy that fits your overall needs, or the needs of your family in the event of your passing. Mortgage life insurance, while certainly sounding like something you would want, might very well be spending your premium dollars on the wrong policy.

Looking for the best deal on mortgage life insurance? Good general advice on life insurance can be found at the preceding links.

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Filed under: Life Insurance

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