For many people, buying their first home is the biggest investment they’ll ever make. A mortgage takes years to pay off, and if something happens to you and your family can’t make the mortgage payments, they could lose the house.
That’s where mortgage life insurance comes in. It’s tailored to your loan, but it has its limitations and doesn’t offer any major benefits compared to a regular life insurance policy.
Mortgage life insurance, also known as mortgage protection insurance, is a type of term life insurance that pays off your mortgage if you die prematurely. Your lender is the beneficiary, which means the proceeds of your policy go directly to them when you pass away. That’s the key difference between a mortgage protection policy and a traditional life insurance policy: Your family doesn’t see any of the payout.
No. Private mortgage insurance protects your lender if you default on your loan, and it’s typically required if your down payment is less than 20% of your home’s value.
On the other hand, mortgage life insurance helps your family to hold on to your home if you die before paying it off. In that way, it can prevent a default on your loan from happening.
As with a regular term life policy, mortgage protection insurance lasts a set period of time. Most companies only offer 15- or 30-year terms to match standard mortgage lengths.
The face value of your policy is tied to the remaining balance of your mortgage. So, if you have $100,000 left on your mortgage, your policy will be worth $100,000. As your mortgage balance decreases, so will the amount of coverage you have. However, your premium will stay the same for the life of the policy.
If you die before the term is over, the death benefit will go to your lender, who will then use it to cover the rest of your mortgage.
Yes. Customize your policy with the same riders that are offered with term life insurance policies. Some of the most common add-ons include a return of premium (ROP) rider, which refunds any premiums paid if you outlive your policy, and a waiver of premium policy, which waives your premiums if you become disabled and can’t work.
Mortgage insurance serves a single purpose: to pay off the balance on your house if you die. With traditional life insurance, the payout is passed on to your beneficiaries. They can use that money to pay off the mortgage, as well as any other debts or expenses.
If you decide to purchase a regular policy, you can opt for term life insurance or permanent life insurance.
| Traditional life insurance | Mortgage life insurance | |
|---|---|---|
| Who gets the money? | Your chosen beneficiary | Your mortgage lender |
| How much coverage do I get? | However much you choose | The amount left on your mortgage |
| How long does the policy last? | It depends on your policy — term life insurance lasts a set number of years, and permanent life insurance lasts your entire life | Same length as your mortgage |
| When is the money paid out? | When you die | When you die |
| What can the money be used for? | Anything | Mortgage debt |
| Do I need to take a medical exam? | Usually | No |
| Can it cover short-term disabilities? | Yes | Yes |
| Can it cover long-term disabilities? | Yes | No |
Death aside, there are several reasons you could default on your mortgage repayments, including:
Possibly, but it depends on your policy. Some mortgage life insurance policies will continue to pay your mortgage for a short period of time if you’re sick or disabled. But most have a cap on how long the benefit will help.
Mortgage life insurance generally won’t help if you’re unemployed, but you may be able to access benefits through your state.
Yes, but you’ll need to add extra coverage options to your policy. Critical illness insurance pays a lump sum if you’re temporarily sick and unable to work, and disability insurance can replace a percentage of your income if you’re temporarily or permanently unable to work due to a disability.
Mortgage life insurance generally won’t help if you’re unemployed, but you may be able to access benefits through your state.
This depends on the type of insurance you get.
Premium prices will be based on how much coverage you want and how risky you are in the eyes of the insurer. When setting your rate, your insurer will assess these factors:
The underwriting process for mortgage life insurance is much more straightforward. Premiums will be based on:
Mortgage life insurance policies end when:
If you’re considering mortgage life insurance, compare policies based on:
If the mortgage loan is held with the same lender that is issuing the mortgage protection insurance, your premium can be:
Life insurance is the preferable option for many homeowners. It’s flexible, and you can choose how much coverage to buy and who you’d like the proceeds of your policy to go to when you die. On the other hand, if you have a health condition that makes it expensive or impossible to get traditional life insurance, a mortgage protection policy might be your best bet. It will ensure your loved ones won’t be burdened with mortgage repayments if you die before your time.
It’s a good idea to have some sort of insurance in place to handle your debts after you die. While life insurance offers more flexibility and often comes at a lower cost, mortgage life insurance can be helpful for people with pre-existing conditions who can’t qualify for a traditional life insurance policy.
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