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Mortgage Life Insurance

Mortgage Life Insurance

A major expense that might befall your spouse after your death is to bear the cost of mortgage payments that are remaining. Your spouse finds itself in a considerable financial stress following your death with the different debts that are outstanding, mortgage payment topping among the list of payments.

It would be a wise move on your part to have life insurance as an effective way to meet the financial security of your family. In the event of your death, the survivors will receive the tax-free death benefit. The payout that is received could be used to pay the different expenses, one of which is mortgage payments.

The basics of mortgage life insurance

Mortgage life insurance acts to provide financial security to the lender of mortgage payments following your death. In this type of insurance, the premium paid by you remains the same during the lifetime of the policy. After your death, it is the mortgage life insurance policy that pays off the remaining mortgage payment.

The usual factors that are considered to calculate the premium rate for mortgage life insurance are age, health and whether you are a smoker or not. An example explaining mortgage life insurance could be understood from the following example:

For a 40 year old non-smoker, having a policy of $100,000 will cost about $50 a month, depending on your status. In this case, the “death benefit” is the balance that is outstanding on your mortgage. Hence, for a large initial mortgage, the premiums become equally higher. As the mortgage amount is paid off, the policy amount that is paid automatically goes down. In spite of this, the premiums of your policy remain the same as the payments are calculated taking decreasing death benefit in mind.

Shortcomings of mortgage life insurance

A big downfall of mortgage life insurance is that the payout after your death can only be applied to the mortgage balance. There may be cases where your family will have many outstanding debts and expenses to pay for. Hence, you may like to go for a more flexible option. A better alternative over mortgage protection insurance is a standard life insurance policy. You can consider the possibility of a short-term life insurance policy to provide enough coverage to your family as they get the flexibility of making their own choices on making application of their proceeds. There could be additional expenses as well as debts that the death benefit can meet, that include education, savings for college education and childcare.

Mortgage life insurance, mortgage protection insurance and private mortgage insurance

Mortgage life insurance is not the same as that of mortgage protection insurance or private mortgage insurance. Both mortgage life insurance and private mortgage insurance work to protect your lender. In the event of default on your loan, the insurance policy will come to protect the lender. However, you or your family is not protected by mortgage protection insurance and private mortgage insurance in the event of your death. It must be realized that although private mortgage insurance allows lenders to provide you with a loan even if you do not possess the standard 20 percent down payment available with you, it is unable to provide you or your loved ones against repossessing your home if you are not able to make necessary payments. It is only a mortgage life insurance policy that can guarantee full protection for your family.

There are many lenders who consider inclusion of the cost of private mortgage insurance or mortgage protection insurance policy in your monthly payments. However, this should not be confused with protecting you or your family. During review of your loan policy, make sure that mortgage protection insurance is included along with mortgage life insurance policy to make sure that your family is protected completely.

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