Mortgage Life Insurance vs. Term Life Insurance

The concept of buying Mortgage Insurance is tempting. And the thought of having your mortgage paid off if something happens to you is very comforting.
But all mortgage insurance isn’t the same. There are two kinds, and they offer very different coverage.

Private Mortgage Insurance (PMI)

he first type is called Private Mortgage Insurance (PMI). If you buy a home with less than 20 percent down, your lender probably demands you have it. PMI protects the lender, not you. Let’s say you default on your home loan. Your PMI will reimburse the lender if he’s not able to re-sell your home for the amount of our mortgage.
PMI is expensive. So as soon as you have paid down your mortgage to a point where PMI is on longer required (your lender is supposed to advise you when this happens) it is wise to cancel it.

Mortgage Life Insurance

Which leads us to the second kind of Mortgage insurance: Mortgage Life Insurance. Here, in effect, you buy an insurance policy that will pay off your mortgage in the event of your death, disability or some incapacitating disease.
Unlike PMI, this insurance is voluntary. And, while it’s better than PMI, most experts don’t recommend it for two big reasons:

  1. Mortgage Life Insurance is generally sold by the mortgage company. You don’t get the opportunity to shop competitively for your best rates.
  2. Mortgage Life Insurance has a fixed premium (generally expensive) but your benefits decline as you pay off your mortgage.

Most financial experts feel it doesn’t make sense to buy life insurance for narrow reasons. It’s much better to analyze your overall needs — how much would it take for your spouse and children to maintain their standard of living — if something happened to you? Then take out a Life Insurance policy that covers all your financial needs including your home mortgage.
Fortunately, Term Life Insurance rates are extremely reasonable today. An easy way to find out what your needs and costs could be is to contact an independent sales agency like with experienced, impartial licensed agents. They’ll not only help you determine your needs, they’ll “comparison shop” highly rated companies for your best rates.


    • Rachel Spear Reply

      Hi Becky. Thanks for your note. Give one of our agents a call at 1-888-279-6192 to get started.

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