(Photo credit: Thomas Hawk)
What happens when the mortgage holder of home passes on and there is no one there to pay the mortgage? Upon death of the homes owner, the new owners are forced to sell the house or refinance the mortgage into their names. The mortgage holder, like all other debtors to the estate want their money.
To prepare for such an event a new home owner usually or should have some kind of insurance to pay the mortgage off in case of premature death. Mortgage companies offer such insurance just for this reason. The other alternative to this is term life insurance.
Mortgage Life Insurance.
A mortgage life insurance policy pays off your mortgage loan in full upon death. The amount of the payment is the exact amount of the balance due on the home. Also it’s paid directly to the mortgage company.
Term Life Insurance.
A term life insurance policy pays to the specified amount during the life of the insurance policy. It’s not adjusted for any reason. The benefit is paid to a designated beneficiary upon death.
In the chart the prices for both mortgage insurance and term life insurance is shown:
| For a Man Aged |
Monthly bank mortgage insurance premiums |
Term 10 monthly life rates |
| 30 |
$36.00 |
$23.86 |
| 35 |
$52.00 |
$24.09 |
| 40 |
$80.00 |
$31.36 |
| 45 |
$116.00 |
$43.63 |
What do all these numbers mean?
Well, these numbers suggest that a couple buying a home can get a better life insurance rate if you chose a term life insurance policy over a mortgage life insurance policy from your lender. While getting mortgage insurance through your lender is convenient, a term life insurance policy might be the way to go if you’re looking to save money.
Extra coverage with term life insurance
A term life insurance policy gives you added coverage and flexibility over a mortgage life insurance policy:
The beneficiary of a mortgage insurance policy is the bank, whereas your family receives any payout from your term life policy directly. This gives them the flexibility of using the money to pay off debts, or, if they can still carry the mortgage payments, they can use it for investing and securing a future income.
Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a term life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.
Shop, compare and save.
When purchasing your new home, take the time to shop around for life insurance. Compare the cost of a term life insurance policy to a mortgage insurance policy. Chances are you’ll find a term life insurance policy will have lower yearly premiums and offer more coverage and flexibility than a mortgage insurance policy.
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