On this article, I'll be discussing a few areas under mortgage life insurance.
In the case of you wanting to buy the insurance policy, you would have use for a little knowledge on the policy at least.
For this reason, you should probably read along carefully.
Areas under mortgage life insurance that I'll be talking briefly on include;
• What is Mortgage Life Insurance?
• Key Things To Note About Mortgage Life Insurance
• Types Of Mortgage Life Insurance
• Understanding Mortgage Life Insurance
• How Mortgage Life Insurance Works
• What Does Mortgage Life Insurance Cover?
Let's get going, you're going to enjoy this ride, trust me.
WHAT IS MORTGAGE LIFE INSURANCE?
Mortgage Life Insurance is a term life insurance policy which was specifically designed to cover the repayment of mortgage debts and all other related costs in the event of the borrower's demise.
These mortgage life insurance policies are different from traditional life insurance policies. With a traditional life insurance policy, when the borrower dies, the death benefit is paid out.
In the case of the mortgage life insurance policy however, payment is not made until unless the borrower dies, while the mortgage is still in existence.
The mortgage lender is also the beneficiary in this policy.
When compared, the terms of both the life insurance policy and the mortgage life insurance policy match, and there is a reduction in the death benefit as years pass, for the death benefit to correspond with the new outstanding mortgage balance as mortgage payments are being made.
KEY THINGS TO NOTE ABOUT MORTGAGE LIFE INSURANCE
Here are a few things to note about mortgage life insurance, in the case of wanting to purchase the policy.
• A mortgage life insurance policy makes a payment of death benefit to the lender of a mortgage, if the home borrower's demise happens during the term of the mortgage loan.
• Some lenders require their borrowers to take out mortgage life insurance, and those borrowers may also choose permanent life insurance where the naming of new beneficiaries is possible after the mortgage obligation has probably been satisfied.
• The mortgage life insurance policy is properly structured to match total number of years that is remaining on a mortgage.
Death benefit amounts are also adjusted by each passing year to match with the remaining mortgage balance.
TYPES OF MORTGAGE LIFE INSURANCE
In existence, there are mainly two types of mortgage life insurance.
They are;
• Decreasing term insurance
And
• Level term insurance
Let's get a little idea of both.
Decreasing Term Insurance
In this type of mortgage life insurance policy, the size of the policy is in constant decrease alongside the outstanding mortgage balance until the two of them reach zero.
Level Term Insurance
This type of mortgage life insurance policy is just like the opposite of the decreasing term insurance, because the size of the policy does not decrease, even as the mortgage balance decreases.
This type of policy is said to be appropriate for a borrower who has an interest-only mortgage.
UNDERSTANDING MORTGAGE LIFE INSURANCE
The key thing to purchasing a mortgage life insurance policy is that it is important to analyze and examine the terms(most especially), to see if they sit well with you the buyer, the costs, and the benefits carefully.
When also making choices, it is important to remember that there are two lifespans involved - that is, the lifespan of the policyholder and the lifespan of the mortgage in question.
Investigation on whether you can get the same level of coverage for other members of your family, or your family as a whole, at a lower cost and with much fewer restrictions by buying term life insurance is important.
NOTE: Mortgage life insurance should not be confused to be Private Mortgage Insurance(PMI), which is a product that is required by people often who take out a mortgage for less than about 80% of the total value of their home.
HOW MORTGAGE LIFE INSURANCE WORKS
In the case of people who do not qualify for term life insurance due to poor health, mortgage life insurance may actually be of great benefit to them since this kind of policy is sold typically without underwriting.
But even at that, just like any other policy, people who intend to purchase it should seek quotes from different insurance companies and check each insurance firm's financial strength rating with companies that rates and ranks insurers with letter grades.
People who want to avoid policies that have declining-payouts should go for term policies with no medical exam, which have level premiums and level death benefits.
But the truth is, although these policies are more costly and tend to offer lower coverage than other term policies that conduct physical exams and review medical histories, there's a payment of the same benefit at least, even if the insured's demise is 11 or 22 years into the mortgage.
Many policies may return the premiums paid if the policyholder never filed a claim after completing the payment of the mortgage.
The sad thing about this is that even as the premiums are being returned, the worth is going to likely be very less than it was when the policyholder paid it. It happens this way because inflation is said to erode their value.
In addition to that, the policyholder would have likely used up the chance to invest any money they would have saved, if they had purchased a cheaper term life insurance.
WHAT DOES MORTGAGE LIFE INSURANCE COVER?
Speaking of what mortgage life insurance covers, it's nothing complicated.
It just covers your mortgage if you happen to die.
And unlike some other insurance policies which have different targets, the mortgage life insurance policy's target is solely based on paying off whatever that is left on your mortgage.
It is vital to note that it will not pay any of your final expenses, or foot your funeral bills, or pay off child education or future education costs, which are most of the reasons why people opt for life insurance.
Plainly, a mortgage life insurance policyholder's death benefits go straight to the lender of the late insured's mortgage.
This means that survivors and loved ones won't receive the money.
