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I recently heard the phrase, mortgage life insurance for the first time and felt the need to find out what it is. Here’s what I found out. Mortgage life insurance is a life insurance policy that pays off your mortgage if you die. Death benefits are always equivalent to the balance owed to the bank on the loan. Obviously, this provides great peace of mind because, no matter what happens, your family will not have to worry about losing their home in the event of your death. Many mortgage life insurance policies also offer optional provisions including coverage for critical illness. This means that if you’re diagnosed with a terminal illness, the insurance company will pay off the loan.
There are, however, several pros and cons of this type of policy which should be examined before you run out and buy a mortgage life insurance policy. Possibly the biggest advantage of a mortgage life insurance policy is that it is easy to obtain.
Below are some pros and cons of a mortgage life insurance policy to help you make an informed decision.
Advantages:
The death benefit pays off the outstanding balance on your mortgage, thus guaranteeing a home for your family in case of your death. It should is also be noted, unlike a regular life insurance policy, the death benefits from a mortgage life insurance policy are not paid to your loved ones but instead go straight to the mortgage company to the pay off your outstanding mortgage. This is a great way to make sure that the mortgage is paid off instead of having someone spend the money on other things first.
A person in poor health will often pay a higher life insurance premium. Sometimes, if the person’s health is too bad, they may not be able to get life insurance at all. A person in that situation would still be able to get mortgage life insurance and have the peace of mind that comes with knowing that their biggest liability is taken care of when they’re gone.
If your mortgage life insurance policy has the option to provide protection coverage in case of terminal illness, and you opt for it, then this can be a Godsend if you contract a terminal illness and can no longer earn money. If that happens, the insurance company will pay off the mortgage immediately.
Disadvantages:
There is no payout within the first six months of the policy no matter what the situation . This means that if you die five months after buying the policy, your mortgage is not paid.
The amount paid is based on the amount owed on your mortgage. This means as time goes by you end up paying the same premium for less and less coverage until, eventually, when you live long enough to pay off your morrgage, the policy is worthless.
If, for example, you had cancer when you bought the policy, and the cancer eventually kills you, then no benifits are paid.
While mortgage life insurance may enjoy the popularity of universal, whole or term life insurance policies, there are some situations in which one may want to consider a mortgage life insurance policy.
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