Mortgage Life Insurance, What Is It?
Mortgage Life Insurance, What Is It?
Simply put, mortgage life insurance is, usually, a term life that will pay off your mortgage loan in the event of your premature death or that of the co-borrower or both. It usually is offered by a lender or directly by an insurance company.
Mortgage life is sometimes called mortgage protection insurance or loan life insurance.
It is not to be confused with PMI which stands for Private Mortgage Insurance or LMI which stands for Lender Mortgage insurance. PMI and LMI do not protect the borrower, it protects the lender. It is often a requirement when a borrower puts down less than 20% of the amount borrowed. In case you default on the loan, the lender is at least guaranteed that 20% of the loan will be paid back by an insurance company. The lender buys the policy and passes the cost on to you.
Beware as there are many types of mortgage insurance plans. Some plans only pay in case of accidental death and those are usually offered by lenders. Some mortgage life insurance plans decrease in value as your mortgage debt decreases. Some mortgage life insurance plans allow you to transfer the insurance to another lender or loan which is often done as people are always on the look out for better interest rates. Plans that are not portable have the potential of being canceled without you approval. Although, some lenders will require that you sign a waiver to opt out of their mortgage life insurance, know that this waiver may serve only one purpose – and that is to make you reconsider your decision to opt out of the lender’s mortgage life insurance plan.
With all mortgage life insurance, you are entitled to full disclosure of benefits and restrictions. If you have your own private mortgage life insurance plan, all details should be with the policy. If you opt for a lender’s mortgage life insurance plan, you may need to request a copy of the master policy (as you will only get a certificate).
In some cases, particularly with private plans, additional riders will be available that can greatly enhance the value of your mortgage life plan. Some riders may include terminal illness, disability, long term care and more. Make sure to ask your lender or advisor about these potential additional benefits.
I hope this gave you a better idea of what mortgage insurance is. Selecting the right plan can be tricky, so please ask as many questions as you need to. This could be one of your most important decisions. Be well.
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