Mortgage Life Insurance – “Don’t be confused or afraid of it.”
This is how Erik Bjarnason, a banker and home owner in California first starts to explain the basic ins and outs of mortgage life insurance to me. Having very little knowledge on this myself (and Erik being somebody who’s just purchased his first home) I feel like his is a sensible brain to pick.
I asked Erik to give me the most concise idea of how it will benefit or protect his family and new home. Long story short, as he puts it, “It’s protection for surviving family members in case of death, similar to life insurance.” Only in this case, “the debt can be passed on but also secured. If I die, my home goes to my parents,” he says. “They will reap the debt but also the equity, which is a good thing for us.”
So, what are the basics of mortgage life insurance? How does it work? And why should you look into it?
What Exactly Is Mortgage Life Insurance?
As mentioned, mortgage life insurance works similarly to life insurance in that it helps family members if the primary earner dies. The main difference, however, is that the money is earmarked solely for the debt attached to the home.
This works by sending the death benefit directly to the mortgage lender, allowing the surviving family members to keep their home and all mortgage payments accounted for. However, the main caveat in all of this is that the money can’t be used for anything else; no other bills, debts, or expenses left behind in the accidental death of a loved one.
Why Not Have Life Insurance Only?
The payout benefits of a life insurance policy can be used for any and all expenses and debt following a death. Logically, that means your family members can use benefits to pay off a mortgage, making mortgage life insurance feel like one more confusing (and possibly unnecessary) responsibility to take on. However, there are still some factors that make mortgage life insurance necessary when buying a new home.
First off, life insurance policies aren’t affordable for everybody. Existing illnesses or even age can be factors that make getting a reasonable life insurance policy impossible for some and in this instance, at the very least, mortgage life insurance can secure the cost of one of the greatest debts and assets your family will acquire: your home.
Mortgage Protection Insurance (MPI), however, can be secured without consideration for health conditions or the need for medical examination approval. It’s also possible that you’ve bought a new home after already having committed to a life insurance policy. Perhaps that coverage won’t suffice for both the home and other debts and expenses, in which case a mortgage life insurance policy can free up the money and be a welcome addition in preparing for your family’s future.
How can I get more information?
If you have a current insurance provider that you like, know and trust, start with them. If not, reach out to our sales team for suggestions on providers.