Mortgage life insurance basics: What you must know
Taking out a mortgage is probably the most crucial financial decision of your life. While buying a home, you’ll definitely want that your family members don’t face any difficulty staying at the home in the event of your untimely death. If you purchase mortgage life insurance, then the mortgage payments are taken care of by the insurance company in the event of your death.
Meaning of mortgage life insurance
It is an insurance policy that is designed specifically to repay the mortgage in the event of the policyholder’s death. The beneficiary of the policy is usually the mortgage lender or the lending institution, who offers the home loan.
Types of mortgage life insurance
Before purchasing your policy, you need to know about the available options. Mortgage life insurance is usually of 2 types as discussed below.
1. Decreasing term insurance: The size of the insurance policy reduces with the decrease in the outstanding balance of your mortgage till the time both reaches zero.
2. Level term insurance: The size of your policy does not decrease if you purchase level term insurance. It is ideal for a borrower who takes out an interest-only mortgage.
Where to purchase mortgage life insurance
You can purchase your mortgage life insurance from an insurance company through your lender. However, you can also buy insurance from an independent insurance agency, which offers these policies. If you wish, you can purchase it at the same time you take out a mortgage loan.
Make sure you examine the costs, terms and beneficiary of your policy. You need to consider 2 life spans while purchasing your insurance policy – your life span and the life span of your mortgage, that is, the loan term.
Factors influencing insurance premium cost
Following are some factors that influence the premium that you need to pay for your mortgage life insurance policy.
• Age of borrower: The cost of insurance will be more for a person over 50 years in comparison to a person who is below 40 years of age.
• Mortgage loan amount: Your insurance premium depends on the amount of your mortgage. If your loan amount is higher, then you’ll have to pay relatively high premium.
• Use of tobacco: If you have the habit of using tobacco products, then you’ll have to pay high premium.
• Borrower’s physical condition: If your medical reports suggest that your physical condition is good, then you’ll have to pay much lesser premium in comparison to a person who is suffering from life threatening disease. However, insurance premiums do not stay same during the entire loan term. Your insurance premium may increase or decrease depending upon your health condition.
Instead of purchasing mortgage life insurance, you can buy term life insurance, which offers added benefits. If you purchase term life insurance, then you can choose your beneficiary, whereas in case of mortgage life insurance, the beneficiary is always the lender. Apart from that, term life insurance offers more flexibility in comparison to mortgage life insurance. In case of term life insurance, your family members can utilize the money to pay other debts or they can even invest the amount in order to secure their financial future.