What’s The Difference Between Life Insurance And Mortgage Protection

In the life insurance arena, there are many uses for term insurance. I often hear people ask what the difference between life insurance and mortgage protection is. Let’s go over the basics of mortgage protection, how it works and what’s different.

What is mortgage protection?

Mortgage protection is term life insurance that is purchased specifically to pay off the mortgage if you pass away. Generally, because it is bought to pay off a specific debt it’s not as large a policy as you may get for standard life insurance making it more affordable.

For older individuals, it makes more sense to get a small whole-life policy that will cover the monthly mortgage payments giving those still in the home time to sell if needed without falling behind on payments.

What’s the difference between life insurance and mortgage protection?

Term life insurance can be used to pay for anything consequently applicants often pick as large a value as possible to cover as many expenses as they can. Mortgage protection on the other hand is purchased to pay off the one debt only, thereby lowering the cost due to a lower death benefit.

Do I qualify for mortgage protection?

Most people can qualify for mortgage protection. Many companies offer simplified issue term life insurance policies which are often used for mortgage protection. In getting a simplified issue policy you avoid a medical exam, though you do pay a higher premium for the convenience. This is very convenient, in that you will know if you were accepted within a couple of days to a week at most.

Should you buy life insurance or mortgage protection

This depends on your financial situation and your goals. If you don’t really have the money or don’t like insurance in general, then getting mortgage protection may be a good option to lower the expense while protecting the largest debt the family has.

If you don’t mind taking the time to go through a medical exam and a more lengthy underwriting process then life insurance can be a better option. For those that want to retain control of money, they pay into life insurance then whole life insurance or a universal life insurance policy would be a more appropriate option to consider.

Do I Need Mortgage Protection Insurance?

“Need” is too strong a way to look at it. I don’t believe we “need” anything, what do you WANT? Do you want to protect your family against the possibility of you passing away and if so in what way? Ask yourself, and your spouse, “What would it look like if you were to pass away unexpectedly?”

Nobody knows when we will pass away, so having at the very least a mortgage protection policy in place for that possibility could provide a tremendous amount of peace of mind in an otherwise very tragic situation.

How does mortgage protection work?

Mortgage protection operates the same as other insurance policies in that you make payments on a regular basis and in return gain a specific amount of coverage in the event of death. Some of the policies decrease in death benefit as your mortgage goes down but I find the premium for those to be nearly the same as for level options so I don’t recommend or use them personally.

Premiums for your policy are based on your attained age and health, in addition to the death benefit value, you select to pay off the mortgage. If you die, then the insurance company sends your beneficiary a check to pay off the mortgage.

What are these other mortgage insurances I keep seeing?

There are two other insurance products that you will see as you fill out a mortgage application and talk to about buying a home: private mortgage insurance(or PMI), homeowners insurance, and mortgage disability insurance.

PMI (private mortgage insurance) is something that a lender may require depending on how much money you put down on the purchase of your home. Standardly this is added if the amount put down is less than 20% and then can come off later on when the equity growth is sufficient for the lender to not consider it a risk any longer.

Homeowners insurance is also usually included in the mortgage payment but it has specific protections it covers. Things as damage to the home, theft of belongings in the home, fire damage, and others.

Mortgage disability insurance goes into effect when you become disabled and pays the mortgage payment while you cant work. This is different insurance, often not as comprehensive as disability insurance so if considering one, compare them both and choose according to your own needs or interests.

If you are buying a new home or refinancing you will start receiving all sorts of mail regarding mortgages, including mortgage protection. They come in many forms like postcards, sometimes letters, and others.

They are sent by both lenders and insurance companies as an additional option (though some marketing will have you believe it’s an extra “benefit” to incentivize you to call). Don’t be fooled, however, it is an extra cost but if you don’t have life insurance in place, or even if you do, it can be very helpful to have in the event you pass away.

After all, if you do die suddenly how is your family protected? Will they have the means to meet their financial obligations not to mention the added expenses your death will incur?

Buying a home is a good time to evaluate if you have the proper protections in place in case tragedy strikes.

Check with our licensed agents to see if mortgage protection will work for you or if another option is more appropriate.