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Mortgage insurance vs. life insurance

Term life insurance offers more versatile coverage, and can pay off more debts beyond your mortgage.

There are a couple of ways life insurance can help beneficiaries pay off the mortgage. They can use the death benefit from traditional term life insurance policy to cover their repayment, or you could purchase a policy specifically designed to pay back your lender — which is known as mortgage life insurance. However, that coverage isn’t as flexible, and term life insurance offers a wider range of benefits.

Features of mortgage life insurance vs. term life insurance

Mortgage lifeTerm life
Coverage amountThe exact amount you owe on your mortgageAny amount you need, from $50,000 to over $1 million
How it paysBenefit is paid directly to your mortgage company or bankBenefit is paid to your beneficiaries
Average cost$50 a month$20 to $60 a month
Who it’s forPeople who have health issues who don’t qualify for traditional life insurancePeople who want to choose their beneficiaries and who don’t have serious health problems
How you pay for itPay a monthly premium directly to the company, or combine the payment with your monthly house payment.Pay your premiums directly to your insurer.

What is mortgage life insurance?

Mortgage life insurance is a type of life insurance that pays off your home loan if you die prematurely. The death benefit amount is paid directly to your mortgage company or bank. Your loved ones won’t receive any money but will be free from making mortgage payments.

How does mortgage life insurance work?

Mortgage life insurance lasts for the duration of your home loan, which is normally 15 or 30 years. Your benefit amount decreases as your loan is paid off, but your premiums remain the same for the life of the policy.

So you’ll have to pay the same premiums for the entire term, but towards the end of your mortgage, you’ll only have coverage for what is left of your mortgage. This can make it valuable at the beginning of your mortgage but less so towards the middle and end of your mortgage.

Most mortgage life insurers don’t require a medical exam or a health questionnaire in order to issue the policy. There is hardly even an application to fill out — simply answer a short questionnaire that verifies your coverage, submit your payment and you’ll typically receive the policy.

What is term life insurance?

Term life insurance covers your premature death at any time during the length of the term, which can usually be anywhere from 10 to 30 years. It will pay your death benefit amount in one lump sum to your designated beneficiaries, which you choose at the time you apply.

How does term life insurance work?

Like mortgage life insurance, your term life insurance premiums will stay the same for the duration of the term. But your death benefit amount will stay the same for the duration of the term, unlike mortgage life insurance. Your beneficiaries also have the freedom to use the death benefit money however they like, whether that’s paying off the mortgage, paying down other debts or covering basic living expenses.

Depending on the life insurer that you choose and your coverage amount, you may have to take a medical exam or at least complete a health questionnaire.

Mortgage life insurance vs. term life insurance: Which is better??

Term life insurance is likely a better option for most people, especially healthy people. Term insurance maintains its value for the entire term, with the same premiums and the same death benefit amount.

However, consider your needs surrounding these factors before making a decision:

  • Value over time. Term life insurance maintains its value for the entire term of your policy for a set premium, while the value for mortgage life insurance decreases over time with a set premium.
  • Health status. Mortgage life insurance can cover people with serious pre-existing health conditions at relatively low premiums. With term life insurance, the severity of your health condition will determine if you’ll be denied coverage, still be able to score a cheap rate or pay higher rates.
  • Flexibility. With term life insurance, your beneficiaries can use the death benefit any way they like, and you can choose your coverage amount. Mortgage life insurance offers a coverage amount to match your mortgage payoff, but the benefit can only be used to pay your mortgage.

How to choose between mortgage life insurance and term life insurance

Consider this if…
Mortgage life insuranceYou want some type of life insurance but have health issues that make you ineligible for traditional life insurance or make it too expensive.
Term life insuranceYou want your beneficiaries to have the freedom to use the money however they choose and you want a set benefit amount that won’t decrease over time.

Find the right life insurance policy for you

Name Product Issue age Minimum Coverage Maximum Coverage Term Lengths Medical Exam Required
Policygenius
18 - 85 years old
$50,000
$10,000,000
10, 15, 20, 25, 30 years
Depends on provider and policy
Compare 12+ top insurers side-by-side to get the best possible deal, and shop return of premium policies online.
Bestow
18 - 60 years old
$50,000
$1,500,000
10, 15, 20, 25, 30 years
No
Get a quote in less than 10 minutes with on-the-spot approval and no medical exam.
Everyday Life
20 - 75 years old
$100,000
$10,000,000
10, 15, 20, 25, 30, 35 and 40 years.
No
Ladder multiple life insurance policies to save on the coverage you need for all your debts.
Ladder
20 - 60 years old
$100,000
$8,000,000
10, 15, 20, 25 or 30 years
No, for coverage up to $3M
Apply for term life insurance online without the medical exam. Get an instant decision and adjust your coverage at no charge.
Sproutt
18 - 60 years old
$50,000
$4,000,000
5, 10, 15, 20, 25 and 30 years
No
Compare 40+ insurers and apply online to get the lowest possible price — no medical exam required.
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Compare up to 4 providers

Bottom line

Pay off your mortgage with the appropriate amount of life insurance if you die prematurely, enabling your loved ones to continue living in your house. Mortgage life insurance may be a good fit for people with serious health conditions that can’t qualify for other insurance, since it doesn’t require a medical exam. For anyone else, term life insurance is likely the better option since you can choose how much coverage to buy and your beneficiaries can decide how to use the money.

If you’re shopping for life insurance, compare life insurance companies to find the best option for you.

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