Mortgage Protection Life Insurance Policies

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Mortgage protection life insurance pays off a homeowner's mortgage if the homeowner dies. This insurance provides peace of mind to the homeowner that her family will have a paid-off home in case of an untimely death. Though this type of insurance policy may seem like a good idea, there are a number of factors for a consumer to consider before deciding whether or not to purchase mortgage protection life insurance.

How It Works

  • Mortgage protection life insurance works like a traditional life insurance policy, except that the insurance company pays the death benefit directly to the mortgage lender to pay off the mortgage. In addition to a death benefit, many mortgage protection life insurance policies also pay out if the covered person becomes disabled and unable to work or becomes unemployed. In the cases of disability or unemployment, the insurance typically makes the mortgage payment for a set period of time and does not pay off the mortgage. Though a number of companies sell these products, most consumers buy these policies from insurance companies affiliated with the mortgage lender.

Advantages

  • The primary advantage of mortgage protection life insurance is that the insured person does not have to worry about how a spouse or other party will pay for a house in case of an early death. Unlike a standard life insurance policy, an insured person also does not have to worry about how a beneficiary will spend the death benefit, although the person who inherits the house may still sell it. Lenders may add the payment for the mortgage protection life insurance onto the mortgage payment, simplifying the payment process for the borrower.

Disadvantages

  • Unlike traditional life insurance policies, a person's spouse or other heirs have no choice about how to spend the benefit from a mortgage protection life insurance policy. When a person dies, the surviving spouse or other heir may have specific needs that do no include paying off the home. By using a traditional life insurance policy in place of a mortgage protection life insurance, a person's beneficiary may be better able to effectively use the benefit amount. Generally, having separate mortgage protection life insurance and traditional life insurance will cost more than a traditional life insurance policy of the same total benefit amount.

Other Considerations

  • Many mortgage protection life insurance policies do not require the covered person to answer health-related questions or have a medical exam. For those with health problems or a high-risk job, mortgage protection life insurance may be the only life insurance option available. In this case, a homeowner should consider buying the coverage. If a person decides to buy mortgage protection life insurance, it is best to shop around for the best coverage and lowest premiums. The consumer does not have to buy the insurance from a company affiliated with the lender.

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