Is Mortgage Life Insurance the Best Deal Out There?
Good move? Could be...
Some mortgage life insurance policies offer limited coverage at inflated prices, which is why many financial experts reccommend a 30-year term instead.
Let's take a look at mortgage life insurance vs. term life insurance along with the cost, benefits, and exclusions associated with each, and help determine which one is the better deal for you, the consumer.
Quick Article Guide
Here’s what we'll cover in this post:
- Which is Right for Me: Mortgage Life Insurance or Term?
- Important Considerations Comparing Term Life vs. Mortgage Life Insurance
- Who Should be Your Life Insurance Beneficiary - Your Lender or Your Family?
- Declining Death Benefit Should Equal Lower Premiums, Right?
- What if I Pay Off My Home Early or Move?
- How Does Bundling Factor Into Mortgage Life Insurance?
- We're Here to Help!
Which is Right for Me: Mortgage Life Insurance or Term?Life insurance for a specific purpose (i.e. to cover a mortgage) is comparatively easy to figure out.
If you have a 30-year mortgage and owe $200,000…voila, you know your amount (policy “face value”) of coverage you need and length of time (“term” in life insurance jargon).
You should quickly focus on comparing the cost/benefits of term life insurance vs. mortgage life insurance offered by your lender.
Eliminate whole life, universal life and other forms of permanent life insurance from your shopping list - they aren’t suited for this purpose and are very expensive. It's much better to pay down your mortgage faster and eliminate the life insurance expense.
Important Considerations Comparing Term Life vs. Mortgage Life Insurance
Now that you’ve narrowed things down to a term insurance policy vs. mortgage life insurance, what are the most important considerations?
#1: How is Your Overall Health?
Mortgage life insurance is generally the quickest and easiest to qualify for. You commonly don’t need a physical, which is huge if you’re in poor health, refuse to see a doctor, have ongoing substance abuse issues or other major underwriting concerns making you a poor risk.
So shouldn’t mortgage insurance then be a no-brainer? Not always…
If you’re in fair or good health, “no exam” mortgage insurance is relatively expensive. The cost of term life insurance, which requires a no-cost in-home health screening exam, could be half the cost of mortgage life insurance.
An experienced life insurance agent with access to multiple life insurance companies (carriers) will provide estimates and comparisons, as each insurer has its unique underwriting guidelines and corresponding policy costs. We specialize in finding affordable insurance for individuals who are consider to be a "high-risk" for life insurance.
#2: Exclusions with Mortgage Life Insurance
You want to make sure you’re comfortable with the limitations/ restrictions (known as “exclusions”) you’d have with mortgage life insurance, otherwise you may be living with a false sense of security.
Because it’s a simplified issue policy, and not fully medically underwritten, there will be reasons why the policy wouldn’t pay. If you’re diabetic, for instance, you probably don’t want a policy that wouldn’t pay out if you died of something related to that affliction.
Many age life insurance policies ONLY COVER DEATH DUE TO ACCIDENTS. Again, check with your agent and/or the insurer.
If you’ve jumped through the hoops to qualify for term life insurance, it’s the best coverage you can get. As long as you’re paying premiums, the only reasons the policy wouldn’t pay with your demise if you lied on the application and died in the first two years. There’s also no waiting period - you’re fully covered from the time you make your first payment.
Who Should be Your Life Insurance Beneficiary - Your Lender or Your Family?
With mortgage life insurance, your lender is your beneficiary - they are protecting their loss by you not fulfilling your financial obligation. Being free and clear of the mortgage provides help and peace of mind, but may not be ideal.
This may be OK if all you need is the roof over your family’s collective heads. For most of us, there are other bills our families could struggle with.
It may be better for them to receive a tax-free lump sum, allowing them to make future mortgage payments. This also allows them to have a cushion for other financial obligations that may arise, while getting over the loss of you.
With mortgage life insurance, your cost remains the same year to year though your outstanding mortgage is declining over time.This should cost me less, right? Maybe, but typically the answer is NO. Mortgage life insurance is usually twice as expensive as term life insurance, especially if you are in fair or better health.
Declining Death Benefit Should Equal Lower Premiums, Right?
Keep in mind, this insurance is written in the favor of the insurance company.
They’re glad to charge you a level amount and reduce their “exposure” overtime. Again, if you’re willing and able to do a free in-home term insurance exam, you’ll get more comprehensive coverage at a lower cost.
And though your mortgage reduces over time, property taxes, utility cost, and other expenses continue. $2,500 in property taxes doesn’t sound like too much of a burden, but that $50,000 could be used to buy a couple cars your family over the next 20 years!
An extra $50,000 in term insurance may only be the cost of a weekly latte. You may even find that adding a little more term life coverage may even cost you LESS!Many companies, for example, charge less for a $250,000 term policy than a $200,000 policy.
In insurance jargon, it’s called “banding”. The cost of insurance decreases at certain commonly purchased amounts. Check with your agent, they should be willing to share their insider’s knowledge.
Unfortunately, Most of us won’t die quietly in our sleep. Let's say you have a nasty illness and leave a $40k hospital bill behind, and another $10k bill for burial and other final expenses. That extra $50,000 left behind will be needed.
What if I Pay Off My Home Early or Move?Mortgage life insurance will end when you sell or pay off your home. With term insurance, you’re not obligated to keep it any longer than you need it. The cancellation process is simple. Just like your home or auto insurance, you can call your agent and he'll provide the paperwork to do so, or you can simply stop paying your premiums.
If your payments "lapse" by more than 30 days, your policy will typically cancel automatically. Of course, if you set up an "autopay" through your bank you'll need to be more proactive.
Most life insurance companies pay a prorated refund. For example, if you pay quarterly, and cancel one month in, you may be due 2 months premiums.
How Does Bundling Factor Into Mortgage Life Insurance?Bundling is another issue. If bundled into your mortgage, you can’t cancel mortgage life insurance later if you don't need it. Why would this be an issue? Well, let's say it's just you and your younger wife, and your intention is to have the insurance there to keep a roof over her head; in other words, you have no other heirs.
In the unfortunate event she precedes you in death or runs off with the gardener, you may want to stay in your home, but you will no longer want or need the life insurance. If you’re like me, you probably wouldn’t want to be paying for something you don’t need.
We're Here to Help!
As always, you'll want to discuss your specific situation with a experienced life insurance agent. We'd love to help with your insurance needs if you call us at 855-247-9555.
Our services are completely free, and there is not cost to apply for coverage. Give us a call today, or you can request a free online quote below to compare rates from more than 50 life insurance companies in less than a minute.
Managing Partner and Co-founder
Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.
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Questions From Our Visitors
Some of the questions we received from our website visitors:
Please send me a quote for 185,000.00 mortgage. I am a 65 year old male.
Dennis, Most of our clients buy 20 year term policies to help protect their mortgage. If you're just looking for a ballpark quote, you can review best pricing options on our jrclifeinsurancegroup.com website. Cost is determined by age and health, as well as the term (price guarantee period) you choose. You can cancel the policy early without penalty if you reach a point when coverage is no longer needed. Call us if you'd like accurate quotes. We'll complete your pre-qualification underwriting over the phone. There's no cost for our services; we're licensed to answer questions and provide accurate quotes, and will help you through the entire process if you decide to apply for life insurance. (855) 247-9555
My husband just bought a house for 170,000. The mortgage is in his name but he will put me on the papers . He is on board w life ins. As we live on 2 incomes. If something were to happen to him I couldn't afford the mortgage alone so we agreed he would have life ins even a 250,000 policy so I can pay the house off. Can you help
Mrs. Rogers, Thank you for your email and purchase of your new home! Sorry for the delay replying; I’m the monitor of emails sent to JRC’s website and have been on vacation. As explained in the article you read, most people in your situation purchase term life for the majority (the most vulnerable years) of their mortgage, during the time that if either spouse died and their income disappeared, that the survivor would likely lose their home through the inability to keep up with mortgage payments. The solution is life insurance. The death benefit is paid in one lump sum, providing you the ability to use the proceeds to continue making monthly payments or pay off the balance all at once. Most people continue making the monthly payments to maintain mortgage interest tax benefits. Give us a call this week at (855) 247-9555. We'll gather the information needed to provide accurate, pre-qualified life insurance quotes and email for you to review with our husband. We'll explain the application process (it's completely free) and which companies may provide free coverage while your application is processed. JRC works with the 40 term life insurance companies providing the most competitive rates, so we'll eliminate the need to call around for quotes...we'll provide them all at once. Life insurance is regulated, so there is no mark up or cost for our services. We're fully licensed, with agents averaging 10 years of experience. We promise to be helpful and answer all your questions.
I’m a 60 year old male, my wife is 69. We have a 500,000 mortgage. We are very comfortable on 2 incomes but could not afford the mortgage if something happened to one of us. 20 years left on the mortgage...solutions???
Leon, Thank you for your question and visiting JRC’s life insurance website. Your question is a common request for client's seeking life insurance. There are a few options and considerations for how to best structure life insurance at your age if seeking up to 20 year's of coverage. First thing we'd like to do is provide a free underwriting risk assessment by reviewing your age and medical history. This will give us a cost basis and determine which insurer's would be your best fit. We'd then look at the cost of 10, 15, and 20 year term insurance plans, which are generally the most affordable and can be cancelled at anytime should plans change or you decided to sell the home. 20 years would be ideal since that's the amount of time left on your mortgage, however, it would be the most costly. We might determine the cost differential for a 15 year plan could be used to pay down your mortgage faster, making 15 years suitable. Another strategy is to "stagger" two polices. You will owe less on the home in 10 years than you do today, so you might choose to purchase two term life policies, one a 10 year term (price guarantee) and one with a 20 year term. The combined premiums on a $250,000 10-year term policy and $250,000 20-year term policy, for instance, will be considerably less than one 20-year $500,000 death benefit term policy. As you see, there are many factors to consider. JRC is very experienced at helping customer's determine their most affordable options. Give us a call at (855) 247-9555 and we'll be glad to help
I’m 70 years old and just refinanced my mortgage. I would need 150,000 insurance to pay off the mortgage. Can you help?
Mr. Buchanan, Thank you for your question and visiting JRC’s life insurance website. We've been able to help many men in their 70's obtain life insurance. Best place to begin would be for us to help you determine your best options so you wouldn't be overpaying. Cost is determined by age, death benefit amount, and the number of years the cost is guaranteed to not increase. All insurers look at these factors differently, as well as whether you're working or fully retired. It would be beneficial also to have a policy which may allow you to reduce the death benefit/insurance premium (what you're paying) in the future when your outstanding mortgage has reduced to the point where you wouldn't need as much coverage. Another strategy to consider would be secure a $100,000 policy, rather than $150,000, using the cost difference to pay down your mortgage more quickly rather than paying it to an insurer. We'll be glad to help you determine your options and pre-qualify you over the phone...JRC has the underwriting guidelines for the leading insurance companies. This is what is used to determine a new customer's policy cost. Call us at (855) 247-9555 and a licensed agent for your state will assist you and answer all your questions. There's no cost to you; we're compensated by whichever insurance company you choose, and only after you're been approved for coverage and accepted your new policy.