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Buying the Right Mortgage Protection Life Insurance (2018)

mortgage protection life insuranceIf you’ve recently purchased a home, you’re probably considered mortgage protection life insurance. Protecting the balance of the mortgage can prevent your family from losing their home if you were to pass away.

While you may be tempted to respond to the first offer you receive in the mail, it’s important to understand exactly what you’re buying. In addition to being pricey, some mortgage protection life insurance policies include exclusions that may prevent them from paying out.

In this article we’ve further explained the two most common types of mortgage protection life insurance and we’ve included some sample rates to help you estimate the cost of your coverage.

Quick Article Guide:

1. What is Mortgage Protection Life Insurance?
2. Why is Term Life Insurance Better than Mortgage Life Insurance?
3 What are the Downsides of Term Life Insurance?
3. How Much Does Mortgage Protection Life Insurance Cost?
4. What’s a Collateral Assignment?
5. Still Have Questions? We Can Help!

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What is Mortgage Protection Life Insurance?

Mortgage protection life insurance is any type of life insurance coverage that is purchased to pay off the balance of a mortgage. A family’s primary breadwinner will often purchase life insurance or his or her life to ensure that their family is able to keep their home if they were to pass away prior to the mortgage being paid off.

There are two common types of life insurance that are commonly used for mortgage protection; term life insurance and mortgage life insurance. Term life insurance is usually purchased from an insurance agent while mortgage life insurance is usually offered through the mail by a third-party. These companies usually have a partnership or affiliated with your mortgage lender.

As an example, you may have received a yellow envelope in the mail that said something to the effect of:

“Exclusive Offer for Select (Your Bank) Members Only,” or

“Enclosed for (Your Bank) Customer’s Only: Mortgage Insurance Offer”

These policies are extremely easy to purchase, and they rarely ask any health questions or require an exam for approval. Instead, they offer to  charge you a flat rate each month or year for the duration of your mortgage. Sounds simple enough right?

Well, before you mail in that application, its probably important to note that almost every financial adviser will tell you to avoid wasting money on this type of coverage. This is due to the fact that they offer a diminishing death benefit, typically exclude health-related deaths, and they are more expensive than other types of coverage.

mortgage-protection-life-insurance

“But Mortgage Life Insurance Is So Easy to Buy…”

That’s the real reason the mortgage life insurance company isn’t asking you about your health, is because with mortgage life insurance, health-related deaths aren’t covered. Most mortgage life insurance policies do not pay out if you pass away from a heart attack, cancer, stroke, or any other health ailment.

With most mortgage life insurance policies, you would have to pass away in an accident in order for the policy to pay off your mortgage. On average, only about 12% of Americans typically pass way from an accident, so buying this type of coverage leaves you exposed. In addition, most of these policies are MORE expensive than term policies that offer the same amount of full coverage.

Why is Term Life Insurance Better than Mortgage Life Insurance?

As an alternative to traditional mortgage life insurance, most financial advisers recommend term life insurance instead. Term life insurance provides coverage for health-related deaths and accidental deaths while also providing the following benefits:

Level Coverage –  Your mortgage life insurance policy’s death benefit will decrease each year as you pay off your mortgage. With term life insurance, your coverage does not decrease for the entire term of your policy. This allows you to collaterally assign the coverage that exceeds your mortgage balance to another beneficiary.

More Affordable – Term life insurance tends to be less expensive for almost anyone who is in fair or better health. To compare the cost of your mortgage life insurance offer to term life insurance, skip to this section.

More Flexibly – Instead of paying your death benefit directly to your lender, a portion or all of your term life insurance policy’s death benefit can be paid to a surviving family member, business partner, trust, charity, or whomever you chose.

mortgage-life-vs-term-life-insurance

What are the Downsides to Term Life Insurance?

The biggest downside to term life insurance is that is more difficult to buy than mortgage life insurance. When you’re in the process of moving into your new home, the last thing you want to make time for is a free in-home medical exam.

Filling out a form and mailing it back seems like a much easier solution. However, in the life insurance world, policies without health questions are accompanied exclusions and limited coverage. The good news is, in the last few years, a handful of companies began offering “no-exam” term life insurance that is affordably priced.

These policies still require a bit more legwork than filling out a few forms in the mail, but for thirty years of superior coverage, we think it’s worth it. No-exam term policies typically require a 20 to 30-minute interview over the phone, but once you’ve completed the interview and signed your application, your work is usually done.

buying the right mortgage protection life insuranceThe insurance company will electronically review your medical records, driving records, and prescription history before approving your application. For most insurance companies this takes a few weeks, but if you need coverage in a hurry, we may be able to get you approved in as little as 24 hours.

How Much Does Mortgage Protection Life Insurance Cost?

With a decreasing death befit and limited coverage, most of the people we work with mistakenly believe that mortgage life insurance is less expensive than term insurance. However, for most non-smokers in fair or better health, mortgage life insurance is a lot less expensive than term life insurance.

Unfortunately, only a handful of companies still offer mortgage life insurance, and these companies rarely advertise their rates, especially online. To help you compare the rates that your bank or lender may have offered you to term life insurance, we’ve provided some sample rates by age for applicants in average or better health for their age group.

30-Year Level Term Insurance Rates for A Male – $500,000

Current AgePreferred BestPreferredStandard PlusStandardPreferred TobaccoStandard Tobacco
30$32.68$41.28$51.08$65.25$100.92$149.64
35$37.75$44.44$60.34$74.73$142.68$183.95
40$52.46$61.92$83.85$104.58$216.20$275.11
45$81.27$102.77$131.15$166.41$346.28$431.20
50$125.13$161.25$209.41$262.94$530.10$592.11
55$239.94$286.81$337.98$390.48$936.05$1,082.55
60$562.45$604.96$725.95$733.52$1,175.30$1,366.10
*Displayed rates are accurate as of 1/11/2018 and are provided for illustrative purposes only.

30-Year Level Term Insurance Rates for A Male – $500,000

Current AgePreferred BestPreferredStandard PlusStandardPreferred TobaccoStandard Tobacco
30$27.43$33.45$44.63$47.42$71.34$100.05
35$31.82$37.84$49.36$59.25$104.83$142.67
40$43.00$51.17$67.51$79.98$153.42$202.01
45$63.64$75.25$99.24$117.82$240.28$307.36
50$97.61$113.95$148.78$182.99$347.78$437.22
55$174.15$200.81$254.05$319.08$639.91$720.90
60$448.75$495.45$549.15$572.30$906.70$1,071.20
*Displayed rates are accurate as of 1/11/2018 and are provided for illustrative purposes only.

If you have a shorter mortgage, or need less coverage, you may be able to save even more money on the cost of your coverage. As a general rule of thumb, a 20-year term tends to be about half the cost of a 30-year term policy.

What’s A Collateral Assignment?

With term life insurance, your policy offer a fixed amount of coverage for a set number of years. As an example, let’s say that you purchased a $500,000, 30-year term policy to protect your mortgage balance.

In year 1, you’ll have $500,000 of coverage.
In year 29, you’ll still have $500,000 of coverage.

However, in year 29, your mortgage balance will be probably be less than $20,000…so what happens to all of the extra coverage?

Some companies will allow you to reduce your coverage and your monthly premiums, while others opt for a strategy called layering which involves buying multiple polices with varying terms. However, for most of our clients, the best solution is to utilize a collateral assignment. Here’s how they work:

collateral_assignment_illustration

The collateral assignment allocates the coverage that exceeds your mortgage and assigns it to a beneficiary or beneficiaries. Most people list their spouse or a family member as their beneficiary but you can also list a business partner, a trust, an estate, a charity, etc.

If you have no reason to leave behind money other than settling your mortgage, and you’ve already set aside money for your final expenses, you many want to buy a policy that allows you to decrease your coverage. Most policies automatically offer this option, but its always best to confirm with your agent before you apply.

Still Have Questions? We Can Help!

Our licensed agents offer decades of combined experience and our agency works with more than 40 top-rated companies to make sure our clients are always matched with the best options available. By asking you a few questions about your health and coverage needs, we can impartially shop the market and compare rates from dozens of top-rated companies in just a few minutes.

We specialize with applicant’s who are considered to be a “high-risk” for coverage, but we can also help you find the lowest rates if you’re in perfect health. Most importantly, our services are free and their is no cost to apply for coverage.

What you won’t find at JRC is pushy sales agents. Our agency is owner-operated and our experts do not have sales quotas to meet or shareholder’s to answer to. We take our time with every client to make sure they understand all of their options before they make a decision.

Give us a call today, and you’ll see why our client’s love us 855-247-9555, you can also request a free quote online to instantly compare rates from dozens of companies without speaking to an agent.

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