Why Don't You Need Mortgage Protection Life Insurance?

Mortgage protection insurance is a decreasing term life insurance policy. In other words, the death benefit on the policy is designed to go down over time along with your mortgage balance. Your monthly premium, on the other hand, stays the same throughout the life of the policy. In some cases, mortgage protection insurance also can provide coverage if you become disabled. However, this type of policy is less common.

Mortgage protection insurance isn’t the same as private mortgage insurance (PMI), which is designed to protect the lender if you default on your payments. PMI typically is required on a conventional mortgage if your down payment is less than 20 percent of the value of the home. Mortgage protection insurance, on the other hand, is completely optional.

3 Reasons You Should Avoid Mortgage Protection Insurance

If you have received a letter in the mail offering mortgage protection insurance, here are a few reasons you should toss it.

1. Expensive

For a policy that offers diminishing benefits over time, mortgage protection insurance is surprisingly pricey. Level term insurance offers a level death benefit for a level monthly premium throughout the life of your chosen term. So, you’re paying less for a death benefit that stays the same throughout the life of your mortgage. Of course, life insurance prices can vary depending on your age and health, so make sure you run your own numbers before you decide if this is the best option for you.

2. Mortgage is just very complicated

If you purchase a mortgage protection insurance policy, you might think you’re in the clear. But there are several other reasons you need life insurance, especially if you have children. According to LIMRA, a research and consulting firm, the top three reasons people buy life insurance are to- cover burial and other final expenses, help replace lost income of a wage earner and transfer wealth or leave an inheritance. Instead of buying separate life insurance policies for your mortgage and other needs, keep it simple and get one policy to cover everything.

3. The lender is your beneficiary

With a conventional term insurance policy, your beneficiaries are typically loved ones who get to decide what to do with the money. With mortgage protection insurance, however, the lender is typically the beneficiary, and it uses the money to pay off the debt. There’s no flexibility whatsoever. That means your family doesn’t have the option to use the coverage to pay for funeral costs or replace your lost income.

Concluding

Although mortgage protection insurance letters create a sense of urgency, take a step back and see the bigger picture before signing up for a policy. Shop around and compare insurance rates from several life insurance companies. Also, consider what else you want your life insurance policy to cover in case something happens to you.

You may also like to read:-

• What Are The Common Exclusions Under Term Insurance Plans?
• Importance Of Term Insurance For Young Adults

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.