Recently we did a post on Understanding Credit Life / Disability and Gap Insurance. Today let’s look at the difference in Mortgage Protection and Term Life policies.
Mortgage protection insurance is normally obtained through your lender at the time of a home purchase or when refinancing a current mortgage. Yet many people opt out of this coverage because it increases their house note.
That’s only one of several reasons you should purchase a separate term life policy instead of mortgage protection. Here are a few others….
*Mortgage Protection coverage decreases along with the balance of your home loan but the premium does not go down. This means as the loan balance goes down, so does the total amount of coverage you have. Your mortgage protection may start out at $100K (the amount you finance on your home) but in 10 or 15 years, if your home loan is reduced to $50,000, your mortgage protection coverage is only $50,000 also. However, a 20 or 30 year term life policy stays the same throughout the length of the policy. EX: a 30 yr. term policy for 250,000 might cost a 35 yr. old male $30 a month but the premium, nor the face amount does not change for the entire 20 years!
*Mortgage Protection insurance is financed in with your loan, which means you may be paying interest on the premium. With a separate term life policy, this is not the case.
*Mortgage Protection ends when the loan is paid off, whether that is through the death of the policy holder(s) or the insured pays off the home. Unless you choose to cancel it, a term life policy does not end if you pay off your loan early. Therefore, if you have a $100K 30 year term policy but pay off your mortgage in 25 years, you can maintain the policy for those additional 5 years and thereby leave your family better protected in the case of your death.
*Mortgage Protection coverage ONLY covers the mortgage loan. A term life policy can be used for the loan and/or any other expenses deemed necessary by your beneficiary. Perhaps your spouse can make the mortgage payments with ease, but needs money to put your children through college or pay medical bills or credit card bills you leave behind. A term life policy ensures he/she will have the funds to do so.
Can you have both mortgage protection and a term life policy?
Of course! This would be the ultimate scenario, especially since the surviving spouse may need more than a few days/weeks bereavement time before he/she goes back to work or has to find a job in order to get his/her life back on track due to the untimely death of his/her loved one.
Death of a spouse is heart wrenching and for many, a huge change in lifestyle. Having adequate life insurance ensures him or her the time needed to make the necessary adjustments. Give us a call today and let’s get ‘cha covered!
Until next time, take care and consider…. how much is your life worth?
Tommy Curtis and Staff
This material has been provided for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
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