Finding An Accurate Quote Is A Challenge
When you buy a house, you may get offers from your lender and by mail for mortgage life insurance. But it can be hard to comparison shop on your own. You may find it challenging to get mortgage life insurance quotes online. Many insurers dont offer quotes online, making it difficult to compare policies without having to speak with someone directly.
What Is The Difference Between Mortgage Creditor Life Insurance Vs Life Insurance
There are two common ways to insure your mortgage if you pass away, mortgage creditor life insurance and regular life insurance.
What is the Difference?
Regular life insurance, the most common of which is term life insurance, pays your chosen beneficiary if you die.
Premiums
In both cases, premiums are fixed each month and are based mainly on your age and health. In limited cases, if you make big prepayments, the creditor life insurer might be able to lower premiums once a year to adjust for the lower mortgage balance.
There are many more competitors in the term life market. As such, borrowers sometimes find that premiums are materially lower for regular life insurance, but you need to verify this for yourself as everyones circumstances are different.
Payout
With creditor life insurance, the amount of coverage and subsequent payout decreases as you pay down your mortgage balance. However, in some cases you can ask the insurer to increase your coverage at then-current premium rates .
With term life insurance, the benefit amount stays the same throughout the entire term of the insurance. The amount does not decrease as you pay down your mortgage.
Beneficiary
With creditor life insurance, the lender is the beneficiary.
With regular life insurance, you choose the beneficiary i.e., who gets paid if you die.
Portability
Term life insurance stays active for the full term, regardless of which lender you pick, and regardless of your age or whether you get sick.
Other notes
Consider Life Insurance As An Alternative
Fortunately, I didnt need to buy more life insurance to cover our mortgage because Id purchased a big enough policy when I was young and healthy.
But if youre a new homeowner and dont have life insurance, now is a good time to get some.
The best alternative is a simple level term life insurance policy, which offers consistent premiums throughout the life of the policy and no decreases in your coverage.
That means your family members will get more value and the flexibility to use the funds how they see fit. If they want to pay off the mortgage in full, they can. If they want to make monthly payments and use some of the cash for other needs, they can do that instead.
Although mortgage protection insurance letters create a sense of urgency, take a step back and consider the big picture before signing up for a policy. Shop around and compare insurance rates from several life insurance companies.
Also consider what else you want your life insurance policy to cover in case something bad happens to you. By taking into account your whole financial plan, youll know exactly what kind of policy you need to buy so your family has the protection it needs.
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Protection For The Home You And Your Family Love
Buying a home is a tremendous achievement. Itâs also one of the biggest financial commitments youâll ever make, which is why itâs important to make sure you or your family will be able to continue to make your mortgage payments in the event of death, disability or a critical illness.
Transcript
Your Home, Your Lifestyle
When you chose your home, you chose a neighbourhood to live in and schools to send your kids to.
â¦you chose a lifestyle for your family,
â¦and there is a way to help protect it.
Right now, your finances and mortgage add up nicely.
But what if you got sick or hurt, and were suddenly unable to work?
That means any additional income is preserved to take care of your other expenses.
You canât predict the future, but you can help to ensure that once youâre in your new home, youâll stay there, with a protected mortgage balance from RBC.
Legal Disclaimers:
HomeProtector insurance is an optional creditorâs group insurance program, underwritten by The Canada Life Assurance Company, and is subject to terms, conditions, exclusions and eligibility restrictions. Benefit maximums: life coverageâthe outstanding balance of your mortgage to a maximum of $750,000, disability coverageâyour regular mortgage payment to a maximum of $3,000 monthly for up to 24 months, critical illness coverageâthe outstanding balance of your mortgage to a maximum of $300,000.
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Is Mortgage Protection Insurance Worth It
Whether its a condo, a co-op, or a place in the suburbs with a lawn to mow on Saturday mornings, your home is more than just four walls and a roof. Even if its a work in progress or a starter home that you plan to sell in a few years, protecting your investment is a must.
If you died way too soon, you wouldnt want your family to struggle with the house payment and risk losing the stability and the financial benefits that your home offers.
For most people, mortgage insurance protection isnt worth it because you can get more value from term life insurance. A term life policy offers more flexibility, personalization and financial protection than mortgage life insurance. With term life insurance, you get to choose your coverage amount, and you get to decide who would receive your coverage if you died while the policy was in effect. Your beneficiary or beneficiaries could then choose how to spend the coverage to best protect your family, rather than having your coverage go to your mortgage lien holder.
What Mortgage Life Insurance Covers
Mortgage life insurance, or mortgage protection insurance, refers to a set of life insurance products that are designed to pay your outstanding mortgage balance if you die. This coverage is often offered by your bank or mortgage lender, but you can also purchase it through unaffiliated insurers. Since so many parties offer mortgage life insurance, the structure and benefits can vary significantly.
Mortgage life insurance policies have a specified period of coverage, generally 15 or 30 years, and the death benefit can be structured in one of three ways:
- The death benefit may be fixed for the first few years of coverage, but then decreases at a specified rate over the life of the policy. This is meant to mimic the rate at which the mortgage is paid off.
- Mortgage principal: Some policies tie the death benefit to the outstanding mortgage principal. This will behave similarly to a decreasing death benefit but, if you pay off your mortgage faster or slower than expected, the policy will reflect that.
- Level: The death benefit will remain the same over the life of the policy. This may be ideal if you have an interest-only mortgage, since the principal remains the same.
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Is Mortgage Life Insurance A Good Idea
While some folks may be attracted to mortgage life insurance because you dont need to take a life insurance medical exam, there are very few advantages to mortgage life insurance over term life insurance.
For many, the biggest deal breaker is the lack of flexibility. With mortgage life insurance, the death payout goes directly to your mortgage lender. With term life insurance, the death benefit goes to your beneficiary who can use the money as they see fit .
Where To Get Mortgage Life Insurance
You can buy mortgage life insurance through your mortgage lender, or through another insurance company or financial institution. Shop around to make sure youre getting the best insurance to meet your needs.
Your lender can’t force you to buy a product or service as a condition for getting another product or service from them. This is called coercive tied selling.
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Case Study #: 51 Year Old Woman Needs Mortgage Insurance To Cover A $350000 Mortgage
If Ms. Jones, a 51 year old non-smoker with a Preferred Rating has a $350,000 mortgage she needs to protect. She could go with a more-expensive $350,000 Banner Life Term policy for 30 years.
This will cover the mortgage, but will cost her $97 per month for 30 years, a total of $34,920.
That would look like this:
Notice her coverage is much higher than her mortgage balance in the yellow years.
Alternately, she gives the Protective Mortgage Strategy a try, wherein she purchases a $500,000 Protective Custom Choice UL policy for 20 years.
This policy will provide a full $500,000 in coverage for the first 20 years, giving her beneficiary ample funds to pay off the mortgage, plus extra to cover additional expenses.
Then, the policy will continue, with a declining death benefit until the end of the 30 year mortgage. This policy will cost her only $74.31 per month, a savings of over $8,168 over the life of the loan!
What Are Optional Mortgage Insurance Products
Optional mortgage insurance products are life, illness and disability insurance products that can help make mortgage payments, or can help pay off the remainder owing on your mortgage, if you:
- lose your job
- become critically ill
- die
Optional mortgage insurance is a type of credit and loan insurance that you are usually offered when you take out or renew a mortgage. You dont need to purchase optional mortgage insurance to be approved for a mortgage.
There are important limits on the coverage that optional mortgage insurance products provide. Read your policy carefully and ask questions if theres anything you dont understand before purchasing these products.
These optional products are different from mortgage loan insurance that you are required to purchase if your down payment on your home is less than 20%.
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Mortgage Protection Insurance Cost
How much a mortgage protection insurance policy may cost you depends on a few different factors. Insurance companies will examine the remaining balance of your mortgage loan and how much time is left in your loan term. As with a traditional life insurance policy, theyll also take your age, job and overall risk level into consideration. In general, though, you can expect to pay at least $50 a month for a bare-minimum MPI policy.
Get approved to refinance.
How Does Mortgage Disability Insurance Work
Mortgage disability insurance can either be bought as a standalone policy, or as a rider on a mortgage life insurance policy. Once youre diagnosed with a disability, either temporary or permanent, your policy will start paying a portion of your mortgage payment each month.
The policy typically has a 30- or 60-day waiting period, which means youll be responsible for paying the first or second months mortgage payments after your disability diagnosis. Once the policy kicks in, the insurance company will directly pay your mortgage company, meaning you wont see the money but your payments will be made.
The standard length of coverage on a mortgage disability insurance plan is one to three years, which is the most common amount of time for people to recover from a disability, or find alternative ways to pay for a mortgage.
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Why I’d Never Buy Mortgage Life Insurance
by Christy Bieber | Updated July 19, 2021 – First published on May 6, 2021
Many or all of the products here are from our partners that pay us a commission. Its how we make money. But our editorial integrity ensures our experts opinions arent influenced by compensation. Terms may apply to offers listed on this page.
There are better ways to protect against the loss of your home if something happens to you.
When you take out a home loan, you may be offered mortgage life insurance. Also called mortgage protection insurance, it helps ensure you don’t lose your home if you become disabled. It can also make sure your loved ones don’t lose the house if you die — the policy will pay off your home loan in the event of your death. If you also have disability coverage, the policy will make payments when you have a qualifying condition.
Mortgage life insurance is different from private mortgage insurance , which lenders may require you to buy if you make a small down payment when buying your house. Unlike PMI, mortgage life insurance is usually optional. And although mortgage life insurance may sound like a good product, I’d never buy it. Here’s why.
Mortgage Protection Coverage Is More Expensive Than Medically Underwritten Term Coverage
Mortgage protection insurance is usually a type of simplified issue life insurance coverage, which means you dont have to undergo a medical exam and the underwriting process is less precise. Typically, the less an insurance company knows about you, the more risk they are taking on in insuring your life. Because of this added risk, mortgage life insurance is usually going to be more expensive than a medically underwritten term life insurance policy.
Lets look at some pricing examples for term life insurance assuming you have a 30-year mortgage. Editors note: we searched for pricing examples for mortgage protection insurance and were unable to find easily accessible quotes. Per an insure.com article: The national average for a mortgage amount is $120,000, Albright says. Assuming thats your mortgage, you would pay roughly $50 a month for a bare minimum policy. Please keep in mind that with mortgage protection insurance, your coverage amount will decrease over time as you pay toward your mortgage balance.
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Payment Of The Policy May Depend On How A Policyowner Dies
Some mortgage life insurance policies will only pay a death benefit if you die from an accident, similar to accidental death insurance. Regular life insurance has fewer exclusions usually suicide within the first two years or an illness that was intentionally not disclosed in the application process than mortgage life insurance on whether a policy will pay out death benefits.
A Historic Opportunity To Potentially Save Thousands On Your Mortgage
Chances are, interest rates won’t stay put at multi-decade lows for much longer. That’s why taking action today is crucial, whether you’re wanting to refinance and cut your mortgage payment or you’re ready to pull the trigger on a new home purchase.
The Ascent’s in-house mortgages expert recommends this company to find a low rate – and in fact he used them himself to refi . and see your rate. While it doesn’t influence our opinions of products, we do receive compensation from partners whose offers appear here. We’re on your side, always. See The Ascent’s full advertiser disclosure here.
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What Is Mortgage Life Insurance
Mortgage life insurance is a special type of insurance policy offered by banks that are affiliated with lenders and by independent insurance companies. But it’s not like other life insurance policies. Rather than paying out a death benefit to your beneficiaries after you die as traditional life insurance does, mortgage life insurance only pays off a mortgage when the borrower dies as long as the loan still exists. This is a big benefit to your heirs if you die and leave behind a balance on your mortgage. But if there’s no mortgage, there’s no payoff.
One thing to keep in mind: don’t confuse mortgage life insurance with mortgage insurance. The latter is private insurance that must be taken out as a condition of some conventional mortgages. While mortgage life insurance can protect youthe borrowerand their heirs, mortgage insurance protects the lender if the mortgagor isn’t able to fulfill their financial obligations. Premiums are either paid separately or are rolled into the borrower’s regular monthly mortgage payment.
Mortgage life insurance is not mortgage insurancethe latter protects the lender in case the borrower defaults on their mortgage loan for any reason.
Once you’ve closed on your loan, be on the lookout for regular mailouts and phone calls trying to sell you a mortgage life insurance policy. These solicitations are often disguised as official requests from mortgage lenders. Documents often lead with alarming headers like:
Does Life Insurance Pay Off A Mortgage
Life insurance like term life or whole life insurance can be used to pay off a mortgage. Your beneficiary will be able to spend the death benefit as they see fit, whether thats paying off a mortgage, paying down student debt, credit cards, medical expenses or any other needs.
The death benefit for mortgage life insurance goes directly to your mortgage lender who will use it to pay off the remainder of the mortgage. The problem with mortgage life insurance is the lack of flexibility. The death benefit can only be used to pay your mortgage and cannot be used to pay down other debts.
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Level Term Life Insurance
Most agents are now selling level term life insurance policies to clients looking for mortgage protection.
this was the second old-fashioned type of mortgage life insurance we discussed above.
This is not a bad solution, because it will provide enough coverage to pay off the mortgage should the insured die before its paid off. The excess death benefit can be used by the beneficiary for other needs and expenses at their discretion.
This policy does not decline, so the value of the purchase remains constant. So it is indeed a better choice than the old-fashioned mortgage protection insurance described above.
However, it may result in over-insurance, which can be costly if not needed. If the balance on your mortgage is only $14,242 when you die, and the death benefit is over $500,000, you may have been paying too much for more coverage than you need.