It is important for consumers to understand that mortgage life insurance is a very specific type of policy that should be considered for a number of reasons. These types of policies are designed to pay off mortgage loans should the policyholder die or be diagnosed with a terminal condition.
Conventional life insurance works to pay beneficiaries and loved ones upon the death of the policyholder. In contrast, mortgage life insurance is meant precisely to repay a mortgage obligation that was in existence prior to the death of the named insured.
Types of Mortage Life Insurance
Broadly speaking, two main kinds of mortgage life insurance policies are sold today. One of them is a so-called decreasing value type of coverage. Under such a policy, the amount to be paid upon death decreases as the policy holder continues making mortgage payments while still alive.
Level policies are those that do not drop in value, even when mortgage payments are continuously made. This type of coverage can be wise for individuals who have taken out interest-only loans.
In advance of choosing a mortgage life insurance policy, it makes good sense to closely scrutinize the positive and negative aspects of making such a purchase. Two main factors to keep in mind are the anticipated lifespan of the homeowner and the time remaining on the mortgage loan.
Lots of homeowners think that because they already own conventional life insurance, there really is no need to buy mortgage life insurance as well. But, they really should take a closer look at just how much their mortgage really costs.
It is essential to think about the funds that would be leftover for family members or other beneficiaries once the mortgage is repaid. For a large number of cases, there would be virtually nothing remaining.
Though it is true that at least the beneficiaries would still have the house, they might have little left over to help with daily expenses and other bills. This would force them to scramble for financial solutions during a very emotionally vulnerable time. By securing a policy of mortgage life insurance, you can spare those closest to you this type of trauma.