Reasons to Skip Mortgage Life Insurance


Your mortgage is one of your biggest investments, and likely your largest monthly expense. Naturally, you want to protect your investment in the event of your untimely death. For this reason, you might consider purchasing mortgage life insurance.

 This is a unique type of life insurance. If you die before paying off the mortgage, the insurance policy pays off your balance. If you’re the head of the household, have dependents, or if others rely on your income, this policy ensures that your loved ones have a place to call home after you’re gone.

 But although mortgage life insurance has its benefits, there are a few things to consider before purchasing a policy

1. Mortgage life insurance is expensive

 The cost of mortgage life insurance varies depending on several factors, such as your age and the amount of your mortgage. Therefore, a smoker might pay more for a policy than a non-smoker. But even if you’re young and healthy, mortgage life insurance is expensive. You’ll have to speak with an insurance agent for a quote. But to give an idea of what you might pay, a 35-year-old non-smoker could pay as much as $750 a year for a policy, which breaks down to about $60 a month. This is in addition to mortgage payments paid to the lender.

 This might not seem like a bad deal—at least not until you learn the cost of getting a term life insurance policy. Term life insurance policies are considerably cheaper. For example, a 35-year-old healthy non-smoker might get a $500,000 term life policy for as little as $20 a month. His beneficiaries receive a death benefit upon his death, which can be used to pay off the mortgage.

2. The value of mortgage life insurance decreases

 Before getting a mortgage life insurance policy, there’s something else to take into consideration. Unlike a whole or term life insurance policy—which has a level death benefit—the value of mortgage life insurance decreases as you pay down the balance. If you purchase a house for $200,000 and die five years later after paying down your balance by $25,000, your policy doesn’t pay the original balance. It only pays what you owe on the mortgage at the time of your death—in spite of the fact that you paid the same premium over the years.

3. There’s no flexibility with mortgage life insurance

 Unfortunately, mortgage life insurance doesn’t offer flexibility. These policies can only be used to pay off the mortgage balance. It cannot be used to pay off other debts or cover future expenses, such as your kid’s college education or wedding. This type of flexibility is only possible with a traditional life insurance policy. With these policies, your beneficiaries can use funds for any purpose.

 When Does Mortgage Life Insurance Make Sense

 Even though mortgage life insurance is expensive and doesn’t offer flexibility, it makes sense in certain circumstances. If you apply for a term or a whole life insurance policy, there’s often a medical underwriting process before the company approves the policy. And unfortunately, it can be difficult to get a life insurance policy if you have poor health. Medical underwriting isn’t generally required for mortgage life insurance, so this type of insurance is an option when you’re not eligible for a term or a whole life policy. It’s true that you’ll pay more for mortgage life insurance, but you’ll also have peace of mind knowing your loved ones can grieve without worrying about the home loan.