Owning a home is one of the most important acquisitions you can make in your life.
You have a property where you can start a family, adopt a pet, welcome guests and relatives, and have many gatherings. Your home is an asset that can appreciate in value and can be considered as a personal investment for you and your family.
However, life is full of uncertainties, and even our best-laid plans are not always guaranteed. You have to think far ahead and have the worst-case scenarios covered. In the unfortunate event that you pass away, you have to think about how you can protect your partner or co-signer from the burden of shouldering your mortgage if you are no longer around.
If you have a mortgaged home or if you are considering buying a home, you must know some ways on how to insure your mortgage and your life.
Consider Your Insurance Options
Two general insurance options can cover both your mortgage and your life: term life insurance and mortgage life insurance. Both options are means of paying off your mortgage and have their advantages and drawbacks. You need to carefully weigh your choices on which option fits your personal needs and your family’s needs best.
Deciding on the mortgage insurance vs life insurance tug of war can be quite tricky if you do not have a definite idea of what you want to do in the future.
You may not want to get your family involved in the future burdens of completing your home mortgage or you may want to assure them of a contingency plan in the event of your untimely death. As morbid as this discussion may seem, being able to reach the day that your mortgage has been completely paid off may not always be certain.
Thus, you have to plan a way to financially cushion your surviving family from the risks associated if you were to die.
Mortgage Life Insurance
Mortgage life insurance is a product specifically designed to pay off your mortgage balance. It can sound reassuring at first, but you have to dig deeper if this is the kind of insurance you’ll need. This insurance is usually offered or sold when you buy your home or shortly after your home purchase. Your mortgage lender, your mortgage lender’s affiliated insurance company, or an interested insurance company may offer you a mortgage life insurance. If you buy this insurance from your mortgage lender, the premiums can be included in your loan and your monthly mortgage payments.
One thing you have to remember with a mortgage life insurance is who the beneficiary is. This insurance product designates the mortgage lender as the beneficiary of the policy and not your spouse or any other person you designate. Simply put, your insurer or insurance company will pay your lender the remaining balance of the mortgage should you pass away. In this type of insurance, the money doesn’t go to your family.
Advantages of Mortgage Life Insurance
One of the advantages of this insurance product is the peace of mind it can give to your family by covering the remaining mortgage balance when you die.
Another advantage is it is easy to apply for mortgage insurance. This is because it generally does not require medical exams or health questions. Unlike traditional life insurance where your health can be considered as a factor in pricing, you can get a mortgage life insurance even if you have medical or health conditions.
Adding life insurance riders can be listed as an advantage here since you can have additional benefits from your mortgage insurance. For one, a living benefits rider can help you access funds from the policy’s death benefit if you are diagnosed with a terminal illness having a life expectancy of 12 months or less. A return of premium riders can allow you to retrieve the premiums you have paid after a certain number of months.
Disadvantages of Mortgage Life Insurance
We mentioned earlier that you can get this product even if you have a medical condition, but if you are healthy, the product can be expensive compared to term life insurance. Another disadvantage worth noting is the decreased payout due to the mortgage life insurance matching your mortgage balance.
It may have a low payout if you are more than halfway through your mortgage payments. Also, your premiums remain the same regardless of your mortgage balance. Its lack of flexibility may be one of the most notable drawbacks when it comes to securing your family’s future.
We mentioned earlier that the money goes to the mortgage lender and not your family, wherein the money could have been used for their future needs.
Term Life Insurance
Term life insurance is another product that can help your family pay off your mortgage balance when you die. It has a flexible coverage amount and term length that can meet your family’s needs. If you aim to cover the mortgage, you can include it in your coverage amount arrangement and select a term length that matches the length of your home loan.
Advantages of Term Life Insurance
Flexibility is a key advantage of life insurance because it not only covers the mortgage balance payment, it also helps cover your family’s financial needs, such as day-to-day bills, credit card debt, costs of childcare, and college tuition.
Affordability is another benefit you can get from life insurance if you are in good health. Another advantage is your insurance policy pays the full face value of your life insurance coverage.
This gives assurance to your loved ones that even if you die during the term when the policy is in force, they can receive the full value of the coverage and use the money to pay off the mortgage and other financial needs.
Disadvantages of Term Life Insurance
Life insurance can be expensive if you are old or unhealthy. Life insurance considers your medical profile, age, and family medical history in considering your premiums.
Old age, sickness, and medical conditions run the risk of dying early, and life insurance providers hedge against that risk by charging you more for the coverage. Life insurance also reminds you of your responsibilities.
It can be burdensome to think that you have dependents and financial responsibilities like debts and mortgages that may outlive you.
However, these can be your motivation to push through with your life insurance.
We have presented here the options you can avail to cover your mortgage and your life. Passing along financial burdens to your family is not a good way of moving ahead. You should get this accounted for by having an insurance policy ready for uncertain times.
This way, you can be assured that your family gets full ownership of your home even if you don’t live long enough to see it.
