Mortgage Life Insurance

Find Mortgage Protection Insurance for Your Family

As buying a home is often the largest single purchase an individual or family will make during their lifetime, protecting the investment becomes a top priority. One protection method is through the purchase of mortgage life insurance. There are two primary types of mortgage life insurance; private mortgage insurance (PMI) and decreasing term insurance, designed specifically to pay off a mortgage upon the death of the property owner(s).

PMI is an insurance product designed to protect the lender, not the homeowner. In simplest terms, it is insurance that repays the lender in the event the loan cannot be repaid, due to premature death, disability or default. In most states, PMI is required when the homeowner’s equity, following a down payment, is less than 20% of the property’s value. In most instances, this insurance is paid along with the mortgage and escrow payment monthly.

Mortgage life insurance directly benefits the home owner and their respective family. This form of insurance offers a true death benefit to the named beneficiaries upon the primary insured’s death. The death benefit proceeds are designed to pay off or down the mortgage loan. In most instances, this type of policy offers a decreasing face amount, to correspond to the presumed decrease in mortgage value over time. However, a policy can be custom designed to fit virtually any specific financial need.

Mortgage Life Insurance Features

These policies will differ slightly among the carriers offering the protection, but there are some basic features typically offered, including:

  • Death benefit options can be chosen based upon the underlying mortgage balance.
  • Coverage is generally offered in 15 and 30 year time frames to correspond to the underlying loan period.
  • The death benefit can remain level for a specified period of time before reverting into an annually decreasing term, adjusting on each policy anniversary.
  • Premiums can be paid monthly, quarterly, semi-annually or annually. Many insurance companies will offer a discount for annual premium payments, so they may be worth consideration.
  • Some policies offer a convertibility option. This feature allows the policy owner to convert their mortgage term benefit to permanent during any year the policy is in force. This benefits an insured that becomes uninsurable during the policy’s period, as they will have the option to retain their remaining death benefit without evidence of insurability. While most insurance companies offer a convertible option to be used any time during the policy term, others set a specific time period, such as 5 years where this option can be used.
  • Premiums increase with the insured’s age at the time of underwriting; younger applicants are typically offered lower annual premiums than older applicants.

Mortgage Life Insurance Underwriting

Once you have made the decision to apply for mortgage life insurance, several factors will be taken into consideration prior to rendering an approval or decline decision. Some of these factors include:

  • Premium Classification- Your age, health (tobacco versus non-tobacco usage) and the amount applied for will determine your premium classification. Better classifications will be associated with lower insurance premiums.
  • Optional Policy Features- As you add features beyond the base insurance amount, your premium will be adjusted accordingly. Some optional riders may include:
  • Waiver of Disability Premium- One of the first things many people cancel in the event they become disabled is their perceived ‘extra’ insurance. However, insurance is one of the most important things for any family to maintain. A waiver of disability premium will pay the underlying term insurance premium in the event that the insured becomes disabled. Once the waiting period has been reached, the disability benefit will trigger. In the event that the disability is permanent, the benefits will pay until the term has been reached. For example, the benefit period may extend until the insured reaches age 65.
  • Additional Term Benefit- For increased coverage, an additional term rider may be an option for your base mortgage insurance policy. Term riders may be offered in a variety of death benefits and periods, depending upon the carrier.
  • Return of Premium- In the event that you do not utilize the mortgage insurance death benefit, your premiums paid will be refunded to you in full. This benefit is associated with a larger ongoing premium, which should be taken into consideration when reviewing whether to add this option to your policy.

Once you have designed the policy that best fits your needs, you will be asked to complete an insurance application. In addition to providing answers on the application, you may be asked to complete a telephone survey and a medical exam, the results of which will be used to determine if you will be offered coverage, and at what rate.

How to Compare Insurance Company Offers

When comparing mortgage life insurance policies, you should consider more than the raw cost. Most financial experts recommend comparing at least three insurance quotes. When comparing, be sure that the policies offered are the same, or apples to apples. Beyond the raw premium cost, consider the insurance company’s financial strength, represented by their rating. And, review the fine print describing the policy’s optional features, to ensure that they are the same. Finally, the relationship you have or feel you can build with your insurance representative may become your deciding factor regarding which insurance policy to submit an application for.

Mortgage life insurance offers individuals and families financial protection against the ‘what-if’s’ in life. Offering affordable premiums and flexible policy features, this type of insurance program may provide the exact coverage you are seeking.