Life is filled with what-if questions! Every homeowner has experienced moments of worry and anxiety. However, one question that is not often asked is whether mortgage life insurance works for your family. For different situations and people, mortgage life insurance is a wonderful option that provides security and peace of mind, but at other times, it can cause several unintended consequences. Listed below are several positives and negatives concerning mortgage life insurance.
What Is Mortgage Life Insurance?
Mortgage life insurance was created with the intentions of enhancing the security that families will feel about their house and mortgage. In short, if one of the providers for the family unexpectedly passes away, mortgage life insurance will automatically pay off your mortgage. In some instance, it will also assist you in covering payments if your health negatively influences your ability to work.
Mortgage life insurance is usually offered to homeowners when they first purchase your house and some even require waivers noting the choice to decline this form of insurance. Mortgage life insurance would then last in perpetuity and would continue to provide peace of mind.
Advantages of Mortgage Life Insurance
One of the largest advantages of mortgage life insurance is the peace of mind it affords to families. Whether it is a terminal illness or unexpected death, mortgage life insurance is extremely beneficial in that it will cover the costs of loans so that families will not need to worry about paying. Essentially, the biggest benefit of mortgage life insurance is this peace of mind that it gives to you!
Plus, mortgage life insurance also provides almost universal coverage without very little underwriting. For example, mortgage life insurance does not often require a medical examination or even blood work before you agree to a policy. As a result, for homeowners who have severe, preexisting medical conditions, this policy will allow them to purchase a form of insurance that traditional insurers would probably refuse.
Mortgage life insurance also does not require the purchaser to die before paying out. If the buyer becomes disabled or unable to work, this form of insurance will grant payouts, enabling the owners to take advantage of this policy. This allows mortgage life insurance to function extremely different than other traditional forms. As a result, mortgage life insurance is much more versatile, thus attracting many buyers.
Ultimately, this insurance allows you to sleep well knowing that your family will be provided for in the event that a worst-case scenario occurs. Your family will always have a place to live if you pass away since the mortgage will be paid off, and you will not need to worry about being able to work and provide for your family for your entire life. It also rolls over when you refinance your mortgage which you can read more about here. Mortgage life insurance possesses the unique ability to provide a sense of calm, and this is its biggest advantage.
Disadvantages of Mortgage Life Insurance
While mortgage life insurance does carry several distinct positives, there are also several disadvantages for certain types of people. For example, with mortgage life insurance, the premiums always stay at a fixed rate, but the payout will gradually decrease. As a result, the value of the policy will decrease as you pay your mortgage down. For some, this will not be an issue, but it is certainly something to keep in mind.
One way you can offset the issue is by opting into relevant life coverage, on top of your regular life insurance. Try this relevant life calculator for more information.
Furthermore, mortgage life insurance is not as flexible as other policies since the money is automatically sent to the bank to pay off the remainder of the mortgage. As long as buyers keep this in mind when they purchase the insurance, it is easy to supplement the lack of flexibility with other policies. Plus, knowing that this insurance will fully pay this debt can also be seen as a benefit.
One more aspect of mortgage life insurance that you should keep in mind is that while the premiums stay at a steady amount, as the value of your mortgage decreases, then the value of the coverage also decreases. As time goes on, the cost for these policies may be much more than the value of the coverage that they are offering. As a result, other forms of insurance may be more cost-effective for the long-run. However, these policies may come with more hoops that buyers will have to jump through
Overall, mortgage life insurance policies can be an extremely beneficial tool as long as buyers are aware of the ins-and-outs of the policies before purchasing.