Mortgage Life Insurance for Homeowners With Medical Issues
If you apply for a mortgage, your lender or one of its partner firms may provide mortgage life insurance to you. While it is not required, mortgage life insurance provides enough coverage to pay off your mortgage and keep your family from having to relocate if you die.
If you want to buy life insurance to cover your mortgage, whether mortgage life insurance is the proper policy for you is mostly determined by your health. With term life insurance, young homeowners with few medical difficulties will get better premiums and more coverage alternatives. However, if you have significant health issues and are unable to qualify for term life insurance, mortgage life insurance will provide greater death benefits than many alternatives.
What mortgage life insurance covers
Mortgage life insurance, often known as mortgage protection insurance, is a group of life insurance products designed to pay off your outstanding mortgage balance if you die. This coverage is frequently provided by your bank or mortgage lender, although it can also be obtained from unaffiliated insurers. Because there are so many providers of mortgage life insurance, the structure and benefits can vary greatly.
Mortgage life insurance policies have a set coverage period, usually 15 or 30 years, and the death benefit can be structured in one of three ways:
- Decreasing: The death benefit may be set for the first few years of coverage, but subsequently lowers at a predetermined rate over the policy's duration. This is intended to approximate the rate at which the mortgage is paid off.
- Mortgage principal: Some policies link the death benefit to the amount owed on the mortgage. This will act similarly to a declining death benefit, but if you pay off your mortgage faster or slower than projected, the policy will adjust accordingly.
- Level: The death benefit will remain constant during the policy's term. If you have an interest-only mortgage, this may be excellent because the principal remains unchanged.
Restrictions of mortgage life insurance
Mortgage life insurance, as opposed to term life insurance, often pays the death benefit directly to your mortgage lender. Your family will not get any excess payout if your coverage amount is greater than your outstanding mortgage balance at the time of your death.
Furthermore, similar to accidental death insurance, some mortgage protection policies will only pay a death benefit if you die in an accident. If this is the case, your policy will not pay out if you die naturally, such as from cancer or a heart attack. We do not advocate this form of coverage unless your family is capable of handling mortgage payments without your assistance after two or three months of planning.
Mortgage life insurance may be attached to your house or bundled as part of the mortgage, depending on the provider. If the insurance is related to your residence, you would need to obtain a new policy if you later moved. Because life insurance quotations are based on your age, this will result in a higher premium.
- A mortgage protection policy that comes with your mortgage is considerably more limiting because you can't cancel it if it becomes superfluous. For example, suppose you purchased a policy to ensure that your spouse might keep the house after your death, but you subsequently split. You'd have to keep paying for a useless advantage.
Term life insurance vs. mortgage life insurance: Which is best for you?
There are numerous parallels between term and mortgage life insurance plans, but term policies provide far greater flexibility and are significantly less expensive – especially if you are quite healthy and a nonsmoker.
The following are some important distinctions between term life insurance and mortgage life insurance:
Feature | Term insurance | Mortgage insurance |
Coverage amount | Any amount | Mortgage principal |
Coverage length | 5-35 years | Mortgage length |
Beneficiary | Your choice | Mortgage lender |
Death benefit paid... | Upon your death | Upon your accidental death |
Underwriting | Health questions and medical exam | Health questions |
If you're in good health, we prefer term life insurance over mortgage life insurance because you'll get lower quotations and the death benefit will go to the recipient of your choice.
If your family has more pressing expenses at the time of your death or decides not to keep the residence, they can use the entire term life insurance payout anyway they see fit.
Mortgage life insurance quotes for healthy homeowners are more expensive because most policies do not require a medical test prior to purchase. As a result, mortgage life insurance firms err on the side of caution and raise their prices proportionately, presuming you're a larger risk.
Mortgage life insurance, on the other hand, is an excellent choice if you have pre-existing medical conditions that prevent you from obtaining regular term insurance.
Death benefits on life insurance plans with minimal underwriting, such as simplified issue or guaranteed acceptance policies, are frequently limited to $100,000 to $250,000. While this payment could replace your income or pay for college tuition, it is unlikely to cover your mortgage.
Other mortgage-related insurance policies
Aside from mortgage life insurance, you may hear about a few more products when applying for a mortgage. These may be offered singly or in combination, but the words are distinct:
- Mortgage disability insurance: If you become totally disabled, this policy either covers your entire mortgage balance or just a percentage of it.
- Mortgage unemployment insurance: If you are out of work for an extended period of time, this coverage will help cover your mortgage payments.
- Private mortgage insurance (PMI): If you secure a mortgage with a down payment of less than 20%, your lender may require you to purchase private mortgage insurance. PMI protects the lender in the event of a loan default, but you can withdraw coverage once your loan-to-value ratio hits 80%.