Mortgage Insurance or Mortgage LIFE Insurance?

The first comment you will hear when talking to most people about insurance is that they are insurance poor. You can't drive—in most states—without car insurance. You don't dare get sick without health insurance; you probably wouldn't sleep at night without fire or home insurance; you know you need life insurance to protect your family in the event of your death; and....the list goes on.

While there seems to be some sort of insurance for every aspect of life, mortgage insurance may be one kind you can afford to refuse. But if not, you can use our convenient service to find the insurer who will give you the best policy. request a free quote online »

Private Mortgage Insurance
Mortgage insurance and mortgage LIFE insurance are two completely different animals. Mortgage insurance, referred to as PMI, is a type of coverage that protects the bank in the event that you default on the loan. You don't have to die for a person to collect! You could, however, lose your job, become disabled, or default on the loan for various reasons, and the insurance would pay the bank if it could not sell the property for enough money to pay off the loan.

Mortgage Life Insurance
Mortgage life insurance is a type of policy that will pay off the mortgage in the event of your death. Some policies also have additional accident and disability riders. Mortgage life is marketed by a third party or a company affiliated with your bank. The medical underwriting requirements may be less stringent than a traditional life insurance.

One thing you want to watch out for is "decreasing term" mortgage insurance. Very few companies sell them—except as conversions from level term policies—but they are out there. With a decreasing term, you pay a level premium, but your face value drops as your loan is paid off. The premium for this type of protection is usually very low, but you still pay for the life of your home loan and have nothing to show for it at the end. Most mortgage companies now offer level term mortgage insurance, meaning that both your premium and your face value will remain unchanged for the life of the policy. With some, you may even have conversion rights so you don't lose the policy at the end of the term.

Another option
If your health is good and you are able to pay a slightly higher premium, you may want to consider a universal life or even a whole life policy instead of mortgage life. Most financial services advisors will tell you that the purchase of life insurance just for the protection of a single loan is not in your best interests. If you should die, your survivors will have more than the mortgage to take care of. It's best to spend some time with a good agent and calculate what funds your family would need in the event of your death.
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