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In This Article I’m Going To Be Discussing The Benefits Of Owning A Life Insurance Plan To Cover A Mortgage Or Set Of Mortgages For A Home Or Multiple Properties
Most likely you’re here today because you are a homeowner of one or multiple homes and you recognize it is incredibly important to cover against what is owed on the mortgage.
Have you ever considered what would happen if you were to pass away? How would the mortgage be paid if you were gone and out of the picture?
If this is a concern for you then this article will do a good job of explaining the benefits of owning life insurance to cover a mortgage.
We’ll Also Talk About Subjects Such As:
- How Much Coverage To Get
- The Difference Between Mortgage Insurance And Life Insurance
- Mortgage Programs To Stay Away From
- Different Options For Mortgage Insurance Programs Depending On Your Age And Other Factors
- Exam Or Not
Why own life insurance to cover a mortgage?
The biggest reason to own mortgage protection life insurance is because your house is more than just a house. It’s your home. It’s a place you’ve decided to put down roots, raise a family, and build memories for many years to come.
It takes many decades to completely pay off a house and take sole ownership. With many mortgages lasting 20 to 30 years, we don’t know really what the future will hold until we get to that point of paying the house off.
Will we live as long as our mortgage last? What if we die short of payoff? This is why mortgage insurance exists.
If you pass away, in exchange the insurance pays a lump sum to your family. This money can be used to cover mortgage payments or even pay off the mortgage all together, leaving your family with the peace of mind in knowing they will not lose their home.
Cover additional expenses
Another reason why people buy mortgage protection life insurance is that they feel it’s important to have life insurance to protect their family. It may be a goal of yours to cover just the mortgage, but it’s also a good goal to cover any additional expenses your family might encounter when your income is taken away.
What many people do when they buy a mortgage insurance plan is that they add additional coverage to the policy. Not just enough to cover the mortgage balance, but enough to replace the income of the person who passes away.
If it’s important in your mind to cover your family and you want to make sure that they’re fully protected upon your passing, buying a life insurance plan on top of a mortgage protection life insurance plan is a good idea as well.
How much mortgage protection insurance do you need?
There are two different ways to look at coverage, depending on what your monthly budget is.
Generally speaking, the first goal of your mortgage insurance plan should be to cover at least half, if not all, of the mortgage principal balance.
This would secure a large chunk of money to eliminate the mortgage upon your passing, relieving your family from the burden of payments so that they can continue to live in the house and own it outright.
The second option is to get more coverage than the principal amount of the mortgage so that you can not only cover the mortgage but also provide cash protection to your family. Maybe there are other expenses beyond a mortgage that need to be taken care of.
Maybe you want to replace your income to provide security for a longer period of time so that your family have time to get back on their feet, and despite you not being there financially.
Providing additional protection can prevent a dramatic change in lifestyle by providing a replacement income. Adding more coverage is a very worthy goal and should be highly considered if you decide that a mortgage insurance plan is right for you.
How do mortgage insurance plans different from life insurance plans?
This is a question that’s commonly asked by clients. I see lots of flyers in the mail that display mortgage protection life insurance with all sorts of benefits.
But the truth is there’s no difference whatsoever between mortgage insurance and life insurance. Mortgage protection insurance is just a term insurance agents use to make our life insurance sound a little bit more fancy and identify the underlying motivation for the coverage.
Stay away from decreasing term mortgage insurance
There is an old fashioned mortgage insurance program called decreasing term mortgage protection insurance. The concept behind the product is fairly simple. Essentially you buy the plan just like any other kind of term life insurance, but as each year passes, the amount of coverage decreases while your premium remains the same.
The problem with this kind of coverage is that your premiums usually don’t go down but your coverage does. If you’re like most Americans, obligations typically stay the same or continue to grow higher with time, so this kind of plan doesn’t make a lot of sense.
For example, maybe you sell your house and want to keep your life insurance and have a new mortgage. Why would you want to take out a brand new plan and start your term from its maximum amount just to have a decrease?
This is why it’s important to work with brokers like us here at Buy Life Insurance for Burial that have access to mortgage insurance plans that work the way you need them to with coverage and premiums that meet your goals.
Strategies for getting mortgage protection life insurance
In this section I’m going to give you two strategies that work fairly well depending on what your goals are for protection. Each of these plans will represent a different kind of person in a different stage in their lives. So let’s go over each and describe the pros and the cons.
Term 10, 20, 30 year plans
The typical mortgage protection life insurance plan uses a term life insurance product that covers for a period of time between 10, 20 and 30 years as long as your payment is made on time. Term insurance provides a payout to your beneficiary after your death.
Term insurance is the most common type of plan among people who have a mortgage. I would say approximately 90 percent of the time they select one of these plans. It’s very likely you’ll get term insurance if you want to cover a mortgage.
Term Life Insurance Coverage – 10 Year Term – $100,000 in Coverage
Term Life Insurance Coverage – 10 year Term – $250,000 in Coverage
Term Life Insurance Coverage – 10 year Term – $500,000 in Coverage
Term Life Insurance Coverage – 10 year Term – $1,000,000 in Coverage
Term insurance is extremely inexpensive relative to permanent life insurance protection such as whole life or universal life plans and it’s a little bit easier to get policies issued without exams.
For older people, universal life policies to age 80, 90, 100, 120
Another option you may want to consider, especially if you’re in your fifties and sixties and it becomes harder to qualify for term insurance, is a universal life program.
The universal life program can act similar to a term life insurance plan in the sense that you can design it to last to a certain age, whether that’s 20 years, 25 years, or longer. Universal life plans have a level of customization that allow you to create a decent plan that will give you coverage for life.
If you’ve been turned down for term insurance or you have found term insurance doesn’t meet your needs, talk with a broker with us at Buy Life Insurance for Burial so that we can show you some universal life options that may be a little bit more suitable and accomplish the same kind of goals.
$50 a Month – Guaranteed Universal Life Insurance
$100 a Month – Guaranteed Universal Life Insurance
$150 a Month – Guaranteed Universal Life Insurance
When price is a problem
When I run across a client that has difficulty finding a budget for their life insurance plan, generally speaking, the individual is in their mid fifties, sometimes older, and is looking for a mortgage payment protection program.
The concept of this is not to pay off the entirety of the mortgage, but to carry the payments for a set number of years before the life insurance policy runs out. So normally what will sell as a $25,000 to $50,000 plan will pay the mortgage payments for a number of years and give liquidity to the policy holder.
This gives the surviving spouse and children time to get things in order to either find another source of income or sell their house without resorting to a fire sale or foreclosure where they would lose equity.
It literally buys time that allows you to get to a point where your family can get back on their feet and sell the house at full value, versus taking a huge loss because the family couldn’t economically afford to stay in the home.
Exam or not
You may be considering whether or not you should take an exam in order to qualify for a mortgage insurance product. At the end of the day, it’s truly up to you. But let me share what I would recommend so that you can figure out what you think would work best for you.
1st option – Take an exam
Taking an exam will secure a better price for your life insurance coverage as long as you’re in good shape and can pass the exam requirements. However you’re going to have to get blood withdrawn, have a physical, and get your vitals taken.
As long as you’re in good health, taking an exam can substantially lower your premium.
2nd option – Non-medical application
Traditionally most mortgage protection insurance programs don’t require exams. They can simply take your medical history to determine your insurability.
The problem with this scenario though is that at the end of the day, the coverage will usually cost 50 to 100 percent more than an application that is fully underwritten with an exam.
Although there are examples where it makes sense to go with a non-medical policy because of health issues, if you are generally in good health I recommend getting an exam.