Fundamentals Of Mortgage Life Insurance Policies

Mortgage life insurance can be an invaluable tool for anyone who has a mortgage as well as a health condition which could make their future ability to pay somewhat uncertain. A policy of this type is designed to cover the insured party’s mortgage payments in the even of his or her death.

How Such Policies Operate

A policy of mortgage life insurance is relatively similar to traditional life insurance coverage. Both policies have a pay-out at the time of the insured’s death, though mortgage life insurance policies do have some distinctions.

The first thing to keep in mind is that such a policy may not be sufficient to payoff the entire outstanding mortgage. As you continue to pay premiums on this kind of policy, you will also be making your mortgage payments. While some may see this as a doubling of their financial responsibility, others view it as a means to secure real peace of mind.

Generally speaking, a pay-out on this type of policy will be the amount outstanding on the insured’s mortgage loan. This amount of the mortgage will have been a determining factor in the amount of the monthly insurance premium paid. The larger the mortgage loan, the greater the insurance payments required to keep coverage in place.

At the start of your coverage, the policy will be set so as to repay the entire outstanding balance in the event of your death. The payable amount will be fixed, provided you do not many any changes to the policy. However, the outstanding amount you owe on the mortgage could indeed change.

For instance, if you become delinquent on mortgage payments, your amount owed on the loan will grow, but the amount of coverage through your mortgage insurance policy will remain constant. Upon your death, the insurance will repay the mortgage up to the point of the original balance, but will not pay amounts due in overages, fees or other charges relating to your arrearages.

How You Will Pay For Coverage

Mortgage life insurance is available in multiple forms. A decreasing term policy is designed to pay a lump sum at the time of death to repay the mortgage loan. The amount will gradually decrease as time passes, as the mortgage balance still due will also continue to drop with each routine payment made.

While this is good for many policyholders, as they will enjoy lower premium payments, the pay-out will also be lower than other kind of mortgage insurance policies, because they are set in such a way as to have a continuously decreasing pay-out amount.

By contrast, a mortgage term plan gives you a fixed premium amount each month that provides you with a fixed pay-out amount upon death. No changes will be made to either amount, as long as no policy changes are made by the holder.

One of the most beneficial features of this type of policy is the fact that you have the freedom to pay off a large portion of your mortgage during your lifetime, yet still receive the same size payout from the insurer upon your death. If this happens, your family members will be able to take advantage of the extra funds at a time when their financial strain may be quite significant.

Will My Mortgage Be Fully Repaid?

The key question surrounding this special type of insurance policy is whether it will be sufficient to repay the insured party’s entire mortgage debt upon his or her death. In reality, it depends on a couple of key factors.

The coverage stemming from such a policy does have a value, though it may be variable. The value of the policy may not be exactly the same as the outstanding mortgage debt at the time of death. Mortgage life insurance policy terms typically state in plain language that they do not guarantee that the remaining value at the time of death will be enough to cover the mortgage in full.

Of course, such policies are likely to at least cover a large portion of the mortgage debt still outstanding, a fact that is of great comfort to surviving family members wishing to retain ownership of the home. Ultimately, that is the purpose of these types of policies and policies such as:

You will be unable to enjoy the property once you have passed away, but your loved ones should be able to do so without enormous financial burdens. By obtaining this type of insurance coverage, you can help make that happen.

Is This Coverage Really Necessary?

The best candidate for mortgage life insurance policies are usually those of middle or advanced age and who still have sizable mortgage balances owing. They also generally have family members who could benefit from taking ownership of the property. If this sounds like you, a mortgage life insurance policy may be something you ought to explore.

Do some comparison shopping to see what is available, and determine if a mortgage life insurance policy is something that fits your budget and your financial planning needs.


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