Mortgage life insurance is a financial tool that guarantees your mortgage is paid off if you were to pass away suddenly. For many of our clients, a home is the biggest purchase they ever make. If one spouse wasn’t there to contribute to the family income, there’s a good chance the second spouse couldn’t afford the mortgage payments on his or her own. Using life insurance to protect your mortgage is ideal for:
- Young families
- New homeowners
Instead of protecting the lender’s investment, this type of life insurance protects you. If you’re the family breadwinner, your passing could cause a big problem for your family. What would they do without your love and support? Would your spouse have to go back to work to make the house payment? In this situation, your policy’s death benefit will pay off the mortgage so your loved ones can keep the house. Plus, if you select a cash value policy, you can use the money your policy accumulates to pay off that mortgage early.
TIP: “Mortgage insurance” is not the same thing as “mortgage life insurance.” If your lender requires you to have mortgage insurance, this is something that protects their investment in the event that you can’t make your mortgage payments.
How does it work?
First, you choose a life insurance policy. There are two types to choose from: term (temporary coverage) or universal (permanent coverage). We’ll walk you through the benefits of each type below.
Term Life Insurance
With a term policy, you’re covered for the length of your policy term (10, 20, or 30 years). The idea is to choose a policy length that matches the term of your mortgage. If you pass away during that term, your spouse can use the income-tax free death benefit to pay off the mortgage.
The goal of selecting this policy is to allow your family to remain in their home after you die. It’s as simple as that.
Universal Life Insurance
With a universal policy, your spouse would still get an income-tax free death benefit to pay off the mortgage if anything happened to you. But there’s also a cash value account that accumulate funds over time. Once that cash value equals the amount remaining on your mortgage, you can use that money to pay off the mortgage entirely! This not only reduces your household’s expenses, but it also significantly decreases the amount of interest you pay on that mortgage over time.
The goal of selecting this policy is to allow your family to remain in their home after you die, as well as to pay off your mortgage as soon as possible and reduce the total amount of mortgage interest you pay.
How much does it cost?
That depends. The cost of a term life insurance policy is going to be the most affordable, but it isn’t going to give you the benefits of cash value. If you’re young and in good heath, a 30-year term policy could cost as little as $300 per year (that’s an actual quote result for a 30-year term, $300,000 policy for a 34-year-old man in California with good health and a non-smoker).
If that same individual were to buy a permanent policy, it could cost as little as $1,352 per year. However, we’d suggest paying more than that to help your cash value grow even faster. The faster it grows, the faster you can use it to pay off your mortgage early! In this case, your cash value account functions like a savings account, only with a better rate of return than a typical savings account.
For more information, give us a call at 1-800-823-4852. We can run quotes for you over the phone as well as answer any questions you may have.