Mortgage Life Insurance vs. Home Insurance
Buying a home is a whirlwind of emotions and it can be a little stressful. If you’re a first time home buyer there is a whole list of things you need to learn about purchasing property. Insurance may not be very high on that list. But if you’re going to put hundreds of thousands of dollars on something it pays to know how to protect that thing and your investment.
When it comes to protecting your house, someone might try to sell you mortgage life insurance. However, well you should get home insurance to protect your biggest asset, you probably don’t need mortgage life insurance.
What is mortgage life insurance?
Mortgage life insurance is a type of policy that pays off your mortgage if you die. It is very much like a traditional life insurance policy, except the primary purpose of it is simply to cover your mortgage as opposed to totally covering a loss of income and funeral expenses.
Typically mortgage life insurance policies will cover up to $500,000 towards the principal and some of the accrued interest. If you’ve been approved for a mortgage, you may be offered this policy automatically, but it isn’t mandatory. Chances are it isn’t even the best coverage option for you. Also, you should realize that your payout amount decreases as your mortgage amount decreases.
What are the differences between home insurance and mortgage life insurance?
No matter how careful you are, things are going to go wrong every so often, and that may result in damage to the property you worked so hard to secure. Repairs aren’t cheap and some disasters can cost so much to come back from that it could leave you absolutely broke. Home insurance policies protect you from having to pay out of pocket for unavoidable repairs. They are also the best way to protect your valuables and possessions from damage or theft.
Mortgage life insurance is concerned with protecting your loved ones from your debt, and home insurance is for protecting the actual home and the things inside it from physical threats.
Regular life insurance is probably better for you
Mortgage life insurance is easy to obtain when you get a mortgage, but it isn’t a very good deal when it comes right down to it. There are a few major advantages that make getting a term life
insurance policy more useful:
- Regular life insurance policies usually have much higher policy limits than $500,000.
- The payout stays the same as your mortgage balance decreases. Since you pay off your mortgage as time goes on, your benefit decreases along with your owed amount.
- You can choose the beneficiary and they decide how to use the benefit as opposed to the mortgage lender.
- Mortgage life insurance is not adjustable. Life insurance is.
- You can keep your life insurance policy if you decide to switch mortgage lenders for no extra cost. A mortgage life insurance policy only stays with you as long as you’re with that lender. If you apply again the premiums will be based on your current age and health information
The sole situation where mortgage life insurance might be better for you is if you can’t get other insurance because of existing health issues or an exceptionally risky lifestyle. So avoid mortgage life insurance, but make sure to get home insurance, and if you’re worried about protecting your family from the loss of your income, get life insurance too.