Term Insurance for Mortgage Protection
Of all the purchases you and your family make over a lifetime, your home is likely one of the biggest. If you’re the primary breadwinner, what would happen if you passed away? Not only is your family left paying for the funeral, but they will have to find a way to pay the mortgage. If one member of the family only works part time or not at all, this life-altering scenario may lead to foreclosure or downsizing to a much smaller residence.
Term insurance – life insurance known for its lower premiums and fixed time period – has become a solution for mortgage protection. On a very basic level, using it lets your family pay off the mortgage for the remaining duration of the loan. How does it differ from other mortgage protection solutions?
The policyholder generally aims to purchase coverage for the remaining amount of the mortgage, if not more, to cover other life expenses. Should you pass away before you reach the end of the term, your family members receive the amount at face value, tax free, to pay off the rest of the mortgage. When setting up your policy:
- You typically have the option of a 15- to 30-year term. In most cases, the term extends beyond the mortgage’s current lifespan.
- Determine how you want to pay your premium, which can range from monthly to annually.
- Understand that premiums tend to be flat for the policy’s term. After five years, they may be raised or lowered, as the death benefit starts to decrease.
- Think about your beneficiaries, as they will be the recipient of your death benefit.
Your beneficiary also gets to decide how the policy is used – it doesn’t always have to go toward a mortgage. Rather, they may apply it to pay off college loans, outstanding credit cards or even home maintenance. Because of this, policyholders may opt for coverage greater than the outstanding mortgage balance. This amount may fold in the cost of college tuition, living expenses and lost income.
How It Differs from Mortgage Life Insurance
Many get confused between term and mortgage life insurance, believing they’re essentially the same. However, several differences exist between these two types of coverage:
- For term life insurance, you can designate your family or anyone else under your roof as the beneficiary. For mortgage life, your lender becomes the beneficiary.
- As a result, when you pass on, your lender gets paid the mortgage’s outstanding balance. However, unlike with term insurance, your loved ones won’t receive a death benefit.
- Premiums vary between both options. Term is known for a flat benefit and premiums, and mortgage life sees the policy’s value decrease over time.
- As the policyholder, you don’t have to undergo a medical exam when selecting term insurance. For mortgage life, it’s required. As a result, your carrier may factor in your medical history.
As you prepare for emergencies, keep your family financially stable with term insurance. Check out this video to learn more about using term insurance for mortgage protection, or give us a call at 203.729.5261.