The Features and Benefits of Term Life Insurance As Mortgage Protection


If you own a home and have traditional Mortgage Protection, you probably have an insurance policy that protects your lenders interest first, meaning that if you pass away, the lender gets the mortgage paid off and your loved ones keep the property. Sounds fair but there is a better way to protect your investment and your family.

An alternative way to protect your mortgage and your family is with a Term Life Insurance policy. The way it works is that the policy is written on the borrower’s life during the length of the mortgage, in most cases 30 years. If something were to happen to the borrower to where he would lose his life during that period, the death benefit is paid to his beneficiaries, tax free, to payoff the mortgage and any other expenses that may occur. This method pays your loved ones first rather than your lender.

Here are the features and benefits of a Term Life insurance policy:

Portability – Being that the policy is written on you rather than the mortgage, coverage can be transferred to a new loan meaning that you do not need to re – apply for coverage should you buy a new home and move during the coverage period. For example, if you have a 30 year $100,000 mortgage and a 30 year $100,000 term life insurance policy and you sell your home after 15 years, you still have a $100,000 policy in place and you can apply it to your new home.

Rate of Policy Stays the Same – Once you get a policy at a specified rate of the monthly premium, you are locked in and any change in your health or age can change it. If you were diagnosed with Cancer your rate would not change. As you get older, the cost of insuring you increases but once you buy your policy, your age will not be a factor. The only thing you have to be aware of is an introductory rate that is priced so low to bring in business to the offering Insurance Company that rates will definitely increase over time. So shop around and look for this benefit.

Death Benefit Doesn’t Go Down – Over the years I have talked to many homeowners who are trying to pay their mortgages off before their 30 year terms are up. I’ve seen people pay them off in as little as 15 years. Being that traditional Mortgage Protection is typically a decreasing term policy, meaning that if you paid down your $100,000 mortgage to $25,000 in 15 years, your $100,000 coverage would be $25,000 without a decrease in your monthly premium. You are getting less value of coverage as you work hard to pay off your mortgage.

With a Term Life product, the death benefit remains the same. So in our example, if you paid down your mortgage to $25,000 in 15 years, your $100,000 policy would not change. So if you passed away, your loved ones would be able to pay off the $25,000 balance of the mortgage and have $75,000 to do whatever they want to do with it – – – tax free!

Accelerated Death Benefit – Otherwise know as a Living Benefit. If you are diagnosed with a terminal illness and your Doctor gives you a year to live you are allowed to take a portion of the Death Benefit, usually one half, to pay for expenses for your care. For example, if you had a Term Life insurance policy with a $100,000 Death Benefit and you would be entitled to a $50,000 Accelerated Death Benefit. This can be used to pay for treatment recommended by your Doctor that is not covered by your health insurance. Another was to use the funds is to compensate someone who taking time off from their job to be your caregiver. In this example, the $50,000 does not have to be paid back but it does reduce the Death Benefit to $50,000.

What it comes down to is value. Are you getting value with a traditional Mortgage Protection policy or is Term Life insurance the way to go to protect your family’s best interest? I would suggest you do your homework and go with an insurance company that gives you more “bang” for your buck. You’ll find that the benefits out weigh any price you may pay as a monthly premium and the “peace of mind” you will attain knowing that your family is protected is priceless.

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