Using Life Insurance for Mortgage Protection

A mortgage is a considerable financial responsibility, one which most likely hinges upon a steady income. Without your assistance, the payments may become difficult to make or, even worse, impossible to meet. Life insurance can help.


This page:

  • Describes using a policy as mortgage life insurance.

  • Recommends the best policy for mortgage protection.

Premiums can vary by as much as 50%. Visit eFinancial, where you can fill out a short form, select a plan, and receive a true personalized quote in minutes. Click here to start.

Use InsureME to compare additional term life and whole life quotes, and get expert advice from an agent in your area, who can help you design a plan that's right for you. Click here to fill out a quick form.

Protecting your home and family

A life insurance policy can protect your family from the financial obligations of making mortgage payments without your salary. In the event of your death, your family will still be accountable for mortgage payments, which may be unaffordable without your contribution.

To protect your family from bearing such a burden and possibly losing the house, we recommend purchasing a life insurance policy. Although there are other insurance options, such as mortgage protection insurance, the wisest and most economically sound choice, is to buy a life insurance policy.

The death benefit of your life insurance policy should include the amount of your mortgage. In the event of your death, the policy's proceeds will cover the entire cost of your mortgage, your house will be paid off, and your family will have one less thing to worry about.

The alternative to mortgage protection insurance

If taking out a mortgage has already substantially cut into your finances, life insurance is even more important. Although your mortgage payments may make paying premiums for a whole life insurance policy unimaginable, there are cheaper options.

As an alternative to purchasing a permanent life insurance policy or mortgage protection insurance, explore the option of buying a term insurance policy for the same duration as your mortgage. This alternative is much less costly. The premiums will be considerably lower, but the coverage will remain the same.

At the end of the policy's life, you can then decide whether you want to renew or convert the policy or if you would rather discontinue the policy. This approach guarantees mortgage protection at the lowest cost.

The cheapest alternative

The best choice, in terms of cost, is decreasing term life insurance. If the sole reason for purchasing a life insurance policy is for mortgage protection, investing in this type of term insurance is your best bet.

At the start of your mortgage, you owe the most to your lender and your mortgage protection should reflect that. However, since after a few years of making payments, you will owe significantly less, decreasing your protection is a logical move. A decreasing term life insurance policy allows this.

You can design your life insurance policy so that your protection is the same amount as your debt. Although the premiums do not decrease over time, your mortgage life insurance quote will be considerably lower than if the quote you would receive if the policy's coverage were level throughout its term. Some policies annual premiums are the same as the level coverage, but the payments end earlier than the end of the policy. For example, the premiums on a 20 year mortgage protection insurance policy are required to be paid for only 16 years even thought the coverage will last all 20 years.

Sidebar
To see how much a term life policy would cost you, get a free quote from Netquote. If you'd like a little help with designing a decreasing term life policy, get in touch with an agent from InsureMe.

Next: Using life insurance to fund your retirement

For more help . . .

Getting the lowest possible premium on your life insurance is almost like an art form. There are many variables to consider, and to get the right balance of term length, benefit amounts, and policy riders and illustrations, you need to take a careful step-by-step approach to the buying process.

Our free life insurance course is designed to help you do just that.

Subscribe here: