The first question we usually hear after “how much does mortgage life insurance cost” is, “how does mortgage protection insurance work.” That’s a great question! To answer that, if first want to clarify that you will hear this type of life insurance called mortgage life insurance, mortgage insurance, or mortgage protection insurance. They are all one in the same, however, different companies use different types of insurance policies to provide this coverage. These policies are intended to help a family remain in their home after the death of a breadwinner, or to give them time to refinance or sell their home. This helps prevent foreclosure by the bank when a family can’t afford to continue to pay the mortgage after a death.
In the past, all mortgage insurance was a decreasing term policy, meaning the death benefit decreased as the mortgage amount lowered. Most of the information found online currently refers to this type of policy. However, most insurance carriers are getting away from this type of coverage.
Now the plans have a Level Death Benefit – The face amount doesn’t decrease as your mortgage is paid down. The death benefit stays the same throughout the term of the policy and is given to your beneficiary, not the lender/bank. Also, the death benefit goes straight to your named beneficiary tax-free! This will enable them to use the money for whatever they need…paying the mortgage down or off, paying funeral expenses, etc.
For example, let’s say you purchased a $100,000 twenty-five year term policy yesterday and it is now in force. Regardless of when you pass in that 25-year term, the death benefit to your beneficiaries will be the same amount. So, if you pass away 1 day after your policy is issued, the beneficiary receives $100,000. If you pass away 10-20 years down the road, your beneficiary receives $100,000.
Also, premium payments remain at a level rate as long as each payment is made on time or within the grace period. Once you lock in the price, it will not increase every 5 years like many policies of the past. Your rate doesn’t change unless you change your face amount or convert your plan.
Living benefits are riders attached to your mortgage protection insurance policy that enable you to use a percentage of the death benefit while you are still alive. This type of benefit can prevent you from losing your home during a critical illness, provide money to help pay medical bills, or whatever you may need financially during a time of illness or disability.
All of our policies come with a Terminal Illness Rider at no extra cost. If you should become terminally ill, determined that you have up to 12 months to live, you may elect to take out a portion of your plan to help with your financial needs. There are also some plans that include Critical Illness Riders at no cost, or sometimes with a small cost to the policyowner. The Critical Illness rider allows you to take out a portion of your face amount to use for medical bills, loss wages, etc, while you are recovering from illnesses such as a heart attack, stroke, or cancer. Other riders are available for disability income. In our conversation to determine your needs, we will offer the rider options available at an additional cost based on your specific situation.
I hope this helped you to understand the basics of how mortgage protection insurance works. In time, keep an eye out for more specifics about these types of policies to help protect your family.