If you just bought a home, congrats! Buying your first home or our seventh can be an exciting time.
It’s a fun thing to get to decorate and set everything up. You want to turn that new house into a home. Being a homeowner brings along a lot of responsibility.
The biggest part of being a homeowner is the mortgage. If something awful were to happen to you, your family is going to be strapped with that mortgage payment every month.
When you move into your home, you’re going to get A LOT of pieces in the mail offering mortgage life insurance (sometimes called mortgage protection insurance). You were probably offered mortgage protection insurance when you were signing the papers to buy your home officially.
When you’re buying a home, it can be an overwhelming experience. Houses are expensive, and they are only becoming more expensive. The idea of protecting your mortgage sounds great, but you probably have a hundred thoughts running through your mind.
Is mortgage insurance worth it? How much should you pay for coverage? Is it a waste of money? This article is going to answer all of this and more.
What is Mortgage Life Insurance
Mortgage life insurance is exactly what it sounds like – a life insurance policy specifically designed to pay off your mortgage if you die.
It operates just like traditional life insurance. If something awful happens to you, the insurance company will pay the face value of the policy to the person listed on the plan. It’s pretty simple.
Sounds like a great idea. You don’t want to leave your loved ones with massive mortgage debt.
There are a few good reasons to buy mortgage protection life insurance. VERY few.
One of them is because it’s easy. The reason a lot of consumers buy these policies is because it’s quick and much more straightforward than a regular life insurance policy.
You don’t have to go through all the steps or jump through any of the hoops like a traditional insurance plan. Most companies won’t require you to take a medical exam, and there are not a million questions to answer.
If you’re looking for the fastest way to give your family money to pay off your home, this can be your go-to product.
Not only can you get it fast, but you can also get it cheap. In 99% of cases, mortgage protection coverage is going to be more affordable than other options. These policies can be better for some people’s budgets.
The VERY Bad
It’s convenient and it’s cheap – sounds perfect. Not so fast. Let’s look at the other side of the coin.
The purpose of these policies are to pay off your mortgage. Nothing more. As you pay down your mortgage, the size of the policy is going to decrease with it. The longer you hold the plan, and you stay in your home, the less coverage you have.
Not only will you end up with less protection, but your monthly payments are going to stay the same! Yes, you heard that correctly. Your coverage goes down, but your rates don’t.
Then there is the beneficiary. When you buy one of these plans, the lender is named as the beneficiary of the policy. Which means, if you passed away, the money goes straight to them.
Here is the problem with this, your family is going to have other bills and expenses aside from the mortgage payments.
They will still need to pay for a funeral, taxes, and monthly expenses. Your mortgage protection insurance will not help them pay for other bills.
If you still think mortgage life insurance is an excellent choice because of the price and speed, there are other choices.
If you don’t want to go through the medical exam, there are no exam policies. Just like with the mortgage protection insurance, you can skip the health exam, answer some questions, and then get insurance coverage.
Mortgage protection insurance can be quick, but there are no exam policies which are faster. There are a few insurance carriers who can get you an application decision in less than two days.
Another choice is a standard term plan. You will have to go through all of the steps and jump through all of the hoops, but it’s the most cost-effective way to get the right amount of coverage.
With a term plan, you name a family member as the beneficiary of the plan. They can use the money in whatever way they need. Pay off mortgage. Replace your income. Pay student loans. They aren’t restricted to one single use.
Should You Buy Mortgage Insurance
Every person has different views on life insurance. Some people want excessive coverage, while others only want the bare-bones.
You have to decide what type of coverage is going to work well for you, but in 99% of cases, mortgage protection insurance probably isn’t the best choice.
Without knowing any specific details about YOUR situation, it’s impossible to make this decision. But nobody should ever buy an insurance policy without understanding all of the pros and cons of the plans and evaluating the alternatives.