Your home is one of your most significant assets. It is a major financial and emotional purchase. Ensuring your family’s home is secure in the event of an untimely death is of great importance to most people. However, confusing terms and understanding exactly how life insurance can help causes many people to procrastinate.
What does it all mean?
Mortgage protection insurance, Mortgage life insurance, and Term Life Insurance can all sound the same, but they mean very different things. Knowing the difference is essential.
Mortgage Protection Insurance
Mortgage Protection Insurance does not protect you or your family. This insurance is not optional and is included as part of your mortgage when your mortgage exceeds 80% of your home’s value. This insurance is to protect the mortgage company, not your family.
Mortgage Life Insurance
Mortgage Life Insurance is a decreasing term life insurance with a fixed premium.
This means the death benefit is most closely matched to your existing mortgage and interest rate. The amount of life insurance provided decreases as your mortgage decreases; however, your premium stays the same for the life of the policy. For example, your death benefit may start at $300,000 with a set premium and 25 years late only have a death benefit of $30,000 with the same premium.
The benefit of this type of policy is that it is typically easier to qualify for and is designed to fulfill the need to pay off your mortgage. There is no Mortgage Life policy that is likely to match your mortgage amount year by year perfectly, but it should be relatively close.
Mortgage life insurance benefits your family in the event of your untimely death. It pays the rest of your mortgage so that your house is fully owned and your spouse or next of kin do not take on the burden of paying your mortgage.
Your mortgage lender may offer mortgage life insurance usually above market rate, but that is because they are the beneficiary rather than whom you would choose. It may not be in your family’s best interest to pay off the home immediately. They would not have the choice if the mortgage company is the beneficiary.
This policy can also be offered by an insurance company of your choosing. You can then pick your beneficiary, and the beneficiary can make the best choice when the time comes on whether to use the proceeds to pay off the mortgage or for other more pressing concerns.
Term Life Insurance
Term Life Insurance can offer most of the same benefits as Mortgage Life Insurance, without many of the disadvantages.
Term Life Insurance provides a death benefit for a fixed amount, at a fixed premium, for a fixed amount of time. Like the above, an example would be $300,000 for a set premium that expires after 30 years. In this case, coinciding with a 30-year mortgage.
How does this compare to Mortgage Life Insurance?
The primary difference is that the death benefit does not decrease. In the Mortgage Life example, after 25 years, there may only be $30,000 in death benefit, but the premium is the same for 25 years.
With Term Life Insurance, the death benefit is the same on the first day as the last day. You decided the death benefit that best matches your mortgage when you initiate the policy. You choose your beneficiary and your beneficiary chooses whether to pay off the mortgage or not and what to do with the rest of the death benefit. The mortgage company has no say in any part of this policy.
Term Life Insurance is affordable and relatively easy to qualify for while still giving you complete control over your own policy and your beneficiary control over what is best for your family.
Protecting your mortgage and your family’s way of life with life insurance is a simple approach. That’s why Starke Agency is here to help. Contact us to discuss your best options so that you can protect your family’s future today.