In simple terms, mortgage life insurance can be described as an insurance that covers up the mortgage payments of the policyholder in case of policyholder’s death. It is an excellent solution for people who are not in the pink of health and have a substantial mortgage to pay.
How It Works
It works in a manner similar to life insurance. The insurance company will pay out the covered amount upon death of the policyholder under life insurance as well as under mortgage life insurance; the only difference in the case of mortgage life insurance is that the payment structure works differently.
In case of life insurance, the nominee will get the whole amount under the insurance plan upon death of the policyholder. The major difference in mortgage life insurance is that it may not cover the entire remaining mortgage payment.
Also, you will need to pay the premium as long as the mortgage remains.. While some see this as a not so valuable in terms of financial planning, there are people who opt for this as it offers them security and peace of mind.
Usually, this insurance will pay the amount that is still needed to be paid for the mortgage in monthly installments. Therefore, the insurance premium for this policy depends on the amount of mortgage that still remains to be paid. So, you will need to pay a higher premium if the amount of remaining mortgage is higher.
When you first opt for this insurance, your insurance plan will cover the entire remaining mortgage amount and your monthly premiums will depend on this remaining mortgage amount. It is important to keep in mind that the insurance coverage is fixed and you won’t be able to change it without changing your insurance plan. However, the mortgage amount you need to pay may change over the course of the loan term.
For instance, if you do not make your mortgage payments regularly, the mortgage amount will go up. However, the insurance coverage won’t go up as you are paying the insurance premium for a fixed amount.
Upon death of the insured person, the insurance company will keep making the monthly mortgage payments as per the original amount covered under the insurance. However, any overages or unpaid amounts will not be paid by the insurance company and the beneficiaries will need to pay the remaining amount to the bank.
What Will You Pay
There are different types of mortgage life insurance. One of the types is the decreasing term insurance. In this type of plan, the insurance company pays out the sum for the remaining mortgage, upon death of the insured. However, in this plan the insurance cover keeps decreasing with time as the amount of mortgage that needs to be paid keeps decreasing.
The biggest advantage of this plan is that your insurance premium will keep getting lower as the coverage amount decreases with time.
The other type of plan is the term assurance plan. Under this plan, you will keep paying fixed premium for as long as you have that mortgage to pay. But, the amount of coverage will remain fixed. The advantage of this plan is that the insurance coverage remains the same and therefore, family members will get the additional money in case of the death of the insured.
As the name of the insurance plans suggest, people want to know whether the insurance company will pay off the remaining mortgage amount. The truth is that it sometimes it does pay off the remaining mortgage whereas sometimes it doesn’t.
You need to keep in mind that the insurance coverage is fixed. Therefore, the insurance policy only guarantees to pay the covered amount and not the entire remaining mortgage as the mortgage amount may fluctuate. However, it will definitely pay off a substantial part of the remaining mortgage amount.
Who Needs This?
The ideal candidate for this type of insurance coverage are elderly or middle-aged persons with substantial mortgage amount still remaining to be paid and who want to leave their property to their loved ones.
You can easily take a look at various available plans and opt for one of the plans, if it fits the financial plans.