Mortgage life insurance is an insurance policy that allows you to repay your mortgage debts when you are no more. This type of insurance policy is designed to help you protect your house from foreclosure when you are gone. Unlike traditional life insurance, mortgage life insurance repays your death benefit only when the insured dies and the mortgage debt is still in existence.
Types of mortgage life insurance
As of today, there are two types of mortgage life insurance: decreasing term insurance and level term insurance. Decreasing term insurance simply means that your mortgage life insurance policy is a direct function of your outstanding mortgage. The more your mortgage debt decreases, the more the size of the policy decreases and vice versa. To say it another way, the more the premium you pay, the more your outstanding debts will decrease until it reaches a zero limit.
On the other hand, the size of level term insurance is fixed and it does not reduce regardless of whether your capital outstanding on the repayment mortgage increases or decreases. Your payout is also fixed. Even though the premium of level term insurance is more than that of decreasing term insurance, level term insurance is attractive to you if your mortgage is interest-based.
Before you buy a mortgage life insurance policy, make sure that the length of the policy term is similar to that of the mortgage. For instance, if the length of your mortgage is 25 years, let your insurer or insurance agents know that you want the policy to be 25 years too. Click here to know more about the pros and cons of mortgage life insurance