DENVER, CO, September 1, 2007 – Real estate lending has been a hot topic within the financial markets as foreclosures rise to record levels across the country. While many are thankfully not a part of those statistics, they still need to ask, "If something happens to me, how will my home and family be financially protected?"
One way to achieve peace of mind is through mortgage insurance, which pays off your house in full in the event of your death. If you have not yet thought about the options for safeguarding your property and providing for your family, now is a great time to do so. Get to know the facts about mortgage insurance and how it compares to term life insurance and then see which one is right for you. You'll be prepared to talk to your life insurance agent and to get a free online life insurance quote from NetQuote.
Mortgage Insurance – How Does It Work?
While mortgage insurance may be offered to you by your mortgage company, in most cases those policies default with the mortgage company as the beneficiary. Yes, your mortgage will be paid off, but that leaves your family with no source of income in the event of your death. So it is best to purchase a mortgage insurance policy through a life insurance agent, which will set up the policy with your family as the beneficiary.
A mortgage protection policy is also considered to be a "decreasing term" policy. Since its main function is to pay off your mortgage, as the balance of your mortgage decreases, so does the death benefit. If you have a 30-year mortgage, at the end of 30 years the death benefit will equal zero; the amount equal to what is owed on your house. This again does not provide a source of income or a way for your beneficiaries to pay their living expenses-not even the taxes that will still need to be paid after the mortgage is paid off.
The premium for mortgage insurance remains consistent throughout the term of the policy, even though the death benefit decreases as the years pass. The result is a monthly payment that is cost effective and coincides with the death benefits during the beginning of your mortgage, but becomes less of a deal as your mortgage balance continues to decrease.
Mortgage Insurance or Term Life Insurance – What's the Difference?
After taking a look at how mortgage insurance works and what it provides, some people turn to term life insurance to cover their beneficiaries with financial protection beyond the balance of their mortgage.
Since term life insurance is not tied to your mortgage, you are able to get a policy that not only pays off your home, but also provides your beneficiaries with an added source of income. For example, if you owe $300,000 on your home, a $1 million term life policy will pay that off, allow for living expenses, pay off a car loan or other debts, provide money for college, etc.
Also, if you are in good health, most times a term life policy is less expensive than the premiums associated with mortgage insurance.
As opposed to a mortgage protection policy that runs for the term of your home loan, term life insurance requires that you purchase a policy for a specific period of time. If you do not opt to renew at the end of that term, then your benefits cease to exist.
Other Things to Consider
If you choose to buy term life insurance, this type of policy allows for more flexibility. For example, if you decide to get a home equity loan to pay off credit card debt or make improvements on your home, at the end of the term of your insurance policy you can increase your death benefits so this addition to your total debt is covered.
The drawback to this level of flexibility is you may see an increase in your premiums as you grow older. Should you experience difficulties with your health, this also becomes a factor when the term expires, and it may be difficult to renew.
If you choose to buy mortgage insurance and you are married, ask your agent if you can purchase a joint policy that will cover both you and your spouse. There may be the option of a premium adjustment if you are able to refinance your home, and thus, bring down your monthly mortgage payment. You'll also want to know what options you have for continuing your policy in the event that you are forced to default on your mortgage.
Take advantage of NetQuote's other research and articles to better understand life insurance, how you can save on life insurance and the ways you can easily shop for life insurance.
Learn how to safeguard your home and loved ones with free life insurance quotes today!
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