What to Know About Mortgage Life Insurance
Mortgages can often be a financial burden on family members who are left behind after a loved one passes away. Mortgage life insurance, however, is a unique form of life insurance that specifically covers mortgage payments if you were to pass away. This article will explore how mortgage life insurance works, how it compares to traditional term life insurance, and how SelectQuote can help.
What is mortgage life insurance?
Mortgage life insurance is a type of life insurance that pays off your outstanding mortgage if you pass away. In many cases, people purchase mortgage life insurance when they buy a home or shortly after, and the coverage lasts the entire duration of the mortgage. If you were to pass away during the policy term, the mortgage lender would receive your payout, making it one less thing your loved ones have to worry about.
Do you need life insurance for a mortgage?
For many people, term life insurance is a stronger option for coverage than mortgage life insurance. Term life insurance can often cover more than just your mortgage payments, and you have more options when it comes to determining the length of your policy. Additionally, mortgage life insurance is often more expensive than term life insurance.
Understanding the Differences: Mortgage Life, Term Life, MPI, and PMI
Mortgage life insurance, also referred to as mortgage protection insurance (MPI), is technically a type of term life insurance. However, when comparing mortgage life insurance and term life insurance, there are a few other differences to consider:
Mortgage life insurance only covers the mortgage, while term life insurance covers all of your expenses up to your coverage limit. This can include utilities, education expenses, funeral costs, and more.
Mortgage life insurance is directly correlated to the balance of your mortgage, meaning as your mortgage decreases, so does your coverage amount. Your premiums, however, will likely stay the same.
Mortgage insurance is typically more expensive than traditional term life insurance.
Both mortgage life insurance and term life insurance differ from another type of mortgage protection called private mortgage insurance (PMI). This is a required expense for conventional mortgage borrowers who pay a down payment of less than 20%.
| How Coverage Works | How It’s Used | What it Costs |
Term Life Insurance | The coverage amount remains fixed over the lifetime of the policy, so as your mortgage decreases, the more flexible your term coverage becomes. | Can be used for a variety of expenses, including debt, mortgage payments, funeral expenses, medical costs, household expenses, and more. | Typically the most affordable type of life insurance policy. |
Mortgage Life Insurance/ Mortgage Protection Insurance | Coverage correlates to the balance of your mortgage, so as your mortgage decreases, so does your coverage amount. | Can only be used toward paying down an outstanding mortgage after the policyholder passes away. | Typically more expensive than traditional term life insurance. |
Private Mortgage Insurance | Lenders are required to cancel the policy when the mortgage balance drops to 78% of the home’s value at the time of purchase or once you’re halfway through your loan term, whichever comes first. | Required for conventional mortgage borrowers who put down a down payment of less than 20%. While the borrower pays for PMI, the policy is meant to protect your lender. | Cost depends on factors like your total loan amount, your credit score, LVT ratio, and your down payment. |
Pros and Cons of Mortgage Life Insurance
As with any type of insurance coverage, it’s important to consider the pros and cons of mortgage life insurance when deciding if it’s right for you.
Benefits of Mortgage Life Insurance
Having mortgage life insurance can help ensure your family’s home is protected if you were to pass away. This offers peace of mind that your loved ones won’t experience additional disruption during an already difficult time of grief.
Limitations to Consider
Mortgage life insurance offers much less flexibility than traditional life insurance, as it can only be used to pay down an outstanding mortgage. Traditional life insurance, on the other hand, can help pay for not only a mortgage but also household bills, medical expenses, debt, and any day-to-day expenses your beneficiaries may have.
How much does mortgage life insurance cost?
Much like any other life insurance policy, mortgage life insurance costs vary from person to person. Overall, though, the average cost of mortgage life insurance is often more than the average cost of term life insurance. As there’s no medical exam tied to the coverage, you can be considered more of a risk to take on than traditional coverage. And while the coverage amount decreases alongside the amount left on your mortgage, the amount you pay stays the same.
Where to Buy Life Insurance for Mortgage Protection
With so many options for life insurance available, it can be difficult to know what carrier or policy is best suited for your needs. If you’re looking into a life insurance policy for mortgage protection, working with a broker like SelectQuote is one of the best ways to ensure you’re receiving unbiased recommendations based solely on your unique coverage needs.
SelectQuote Can Help Answer Your Mortgage Life Insurance Questions
With 40 years of experience, we know a thing or two about the ins and outs of life insurance. Whether you’re interested in learning more about mortgage life insurance or are shopping for life insurance coverage for the first time, our tenured agents are here to help you find the right match. We’ll listen to your needs and concerns in order to find you the right policy from one of our trusted carrier partners—all in as little as 15 minutes.
