Mortgage life insurance, also known as mortgage insurance or creditor insurance, is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person listed on the mortgage passes away. But in many cases, you may prefer to own your own insurance policy.
How does term life insurance cover your mortgage?
When you purchase a term life insurance policy, you take into account all the money your family will need in case you are not around to help out. This includes your mortgage payments.
A term life insurance policy gives you added coverage and flexibility over a mortgage life insurance policy;
- The beneficiary of a mortgage insurance policy is the bank, whereas your family receives any payout from your term life policy directly. This gives them the flexibility of using the money to pay off debts, or, if they can still carry the mortgage payments, they can use it for investing and securing a future income.
- Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a term life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.