Buying a home is probably the largest investment your will make in your life. It is important that your investment be protected in the event of premature death. When you buy your home, your mortgage company will insist that you buy mortgage life insurance which will pay off the mortgage should something happen to you. So what is mortgage insurance? Mortgage life insurance has been around for many years, but really came into its own during the early 1970s. Homeowners who were taking on larger mortgages didn’t want their spouses left holding the bag if disaster struck. Mortgage companies wanted to avoid defaults and foreclosures. Life insurance companies wanted to make more money, and they responded by developing life insurance policies specifically designed for homeowners. Mortgage life insurance pays off the balance owed to the bank or mortgage company in case of your premature death while the mortgage is not fully paid. When you buy a mortgage life insurance, the coverage must equal the capital outstanding on the mortgage and the policy’s termination date must be the same as the date scheduled for the final payment on the. The insurance cover will decrease with the decreasing outstanding. Some mortgage insurance policies will also pay off the mortgage if you become disabled or terminally ill.
All policies operate on the same basic principles. Mortgage life insurance protects a deceased debtor’s survivors by paying off the home loan. The coverage varies widely from policy to policy and company to company. Some mortgage life insurance will pay the exact loan balance directly to your mortgage company after your death. Other life policies feature benefits that stay fixed throughout the term, regardless of your mortgage balance. Many policies pay that benefit directly to the estate or family giving beneficiaries extra cash to pay off home-selling costs, equity loans against the property or other expenses. Some mortgage life insurance policies have a waiver of premium benefit. Under such a policy, if you become disabled for at least six months, the insurance company will waive the premium during the disability even if it is for the rest of your life.
These days, it has become common to buy return of premium policies for mortgage term life insurance because the traditional mortgage life insurance rates are not as competitive as most term life rates. With a return of premium policy, you get back all the payments you make if you keep the policy.
