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Mortgage Life Insurance Policies

Aug 22, 2008
What Is Mortgage Life Insurance?

If you have a mortgage and are a home owner, you have most likely heard the pitch for mortgage life insurance. It typically comes in an envelope from your lender and might include a letter from your lender suggesting that you buy a policy.

It is important to realize though, that the insurance itself is sold by insurance companies. Even though it is called "mortgage insurance," it is in reality decreasing term life insurance that will pay off your mortgage if you pass away.

How Are Premium Payments Planned?

Mortgage life insurance is a decreasing term policy. The policy starts with a death benefit that is equivalent to your existing mortgage balance. The death benefit reduces at the same pace as your mortgage balance. The premium payments never vary but may cease before the loan payment. Your lender may agree to include the premium payments to your monthly mortgage expense.

Is Mortgage Life Insurance Identical to Private Mortgage Insurance (PMI)?

No--mortgage life insurance is commonly befuddled with Private Mortgage Insurance (PMI), but they have little to do with one another. You purchase mortgage life insurance willingly to shelter your family from having to pay the mortgage.

Mortgage lenders require you to buy PMI to shield them (the lenders) from the probability that you will default on the mortgage.

Insurance Tip: Request for insurance agents to estimate their best price for a decreasing term policy in the same amount, period, and interest rate before buying from a sales pitch sent by your mortgage company.

What Is Credit Life Insurance And Credit Disability Insurance?

When financing some kinds of big items - automobile, furniture, audio equipment - there is a good possibility you will be presented with credit life and credit disability insurance. Credit life guarantees to pay your balance if you die. Credit disability will pay your payments if you become disabled and not capable of working.

Credit life is a decreasing term policy. The insurance premiums are typically added into the loan contract. This type of insurance is constantly voluntary and it can be rather costly. Your lender cannot require you to purchase credit life or credit disability insurance.

Although they may have some comparable elements, credit life and credit disability insurance are not the same thing as mortgage life insurance.

What Is A Life Insurance Rider?

A "rider" is something that is supplementary to the basic policy. Riders can be used to either add benefits to the policy or limit benefits previously in the policy. Common riders are as follows:

Accidental death: Double indemnity is an additional name for this rider. It means that the benefits paid by your policy will be two times the face sum of the policy if you die in an calamity.

Approximately twenty percent of policyholders perish in accidents.

The price for an accidental death rider is usually reasonably priced.

Some critics bring up the point that how the policyholder dies has nothing to do with how much money your survivors will need.

Waiver of premium: This rider allows you to cease paying premiums whenever you happen to become disabled and unable to continue working.

It is crucial to comprehend how the rider defines "disabled." For example, the meaning could be very restrictive and require you to be so extremely disabled that you cannot do any sort of work whatsoever.

A disability policy can also defend you from monetary hardship due to a disability. Depending on the kind of policy you acquire, it could supply capital to pay for all of your living expenditures, not solely your life insurance premium.

Mortgage protection: This rider fundamentally attaches a mortgage life policy to your chief policy.

Other insured: You can insert life benefits for your spouse or children. They may have varying coverage amounts and be subject to medical underwriting, however.

Guaranteed insurability: This rider would characteristically be added to a whole life or universal life insurance policy.

It gives you the right to procure a new policy or amplify the maximum on your existing policy without having to pass another medical assessment.

The rider will most likely indicate how much you can add and at what time you can do it.

The guarantee may not persist after you reach your mid to late forties.

Accelerated death benefit: This permits you use some portion of your death benefit when you have an incurable sickness. Some policies will insert this rider without causing your premium to enlarge.

Insurance Tip: If your agent automatically includes riders when calculating your premium, request the agent to value each rider independently. You can then choose whether you think the additional benefit any rider provides is worth the added rate.
About the Author
Sarah Martin is a freelance marketing writer based out of San Diego, CA. She specializes in life insurance policies, companies, and advice as well as finance and business. For a free term life insurance quote, please visit http://www.equote.com.
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