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Life insurance can pay off your mortgage, but there are two options to choose from. Mortgage life insurance only covers your mortgage, while term life insurance can pay off your mortgage and cover anything else your beneficiaries need.
Mortgage life | Term life | |
---|---|---|
Coverage amount | The exact amount you owe on your mortgage | Any amount you need, from $50,000 to over $1 million |
How it pays | Benefit is paid directly to your mortgage company or bank | Benefit is paid to your beneficiaries |
Average cost | $50 a month | $20 to $60 a month |
Who it’s for | People who have health issues who don’t qualify for traditional life insurance | People who want to choose their beneficiaries and who don’t have serious health problems |
How you pay for it | Pay a monthly premium directly to the company, or combine the payment with your monthly house payment. | Pay your premiums directly to your insurer. |
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.
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.
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.
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.
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:
Consider this if… | |
---|---|
Mortgage life insurance | You 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 insurance | You 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. |
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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