What Is Mortgage Life Insurance?
A mortgage life insurance policy makes provisions for mortgage debt to be repaid in the event of the holder’s death.
It essentially functions to protect the holder’s family and stop them from losing the home.
It is also known as ‘mortgage protection insurance.’
Mortgage life insurance plans are typically purchased when homes are bought or a period not long afterward.
The length of time during which the policy takes effect is the same as the mortgage term, that is, the time required for the mortgage to be paid off.
The sale of a mortgage life insurance is usually made by the lender of a mortgage, an insurance company affiliated with the lender, or another insurance company that reaches out upon gaining access to the information through public databases.
Also, it is essential to note that the policy’s beneficiary is the lender and not the spouse or any other person of the borrower’s choosing.
This implies that the insurance company pays the balance on the payment directly to the lender if the borrower passes away and not to the family, as might be thought.
Two co-borrowers that could be marital partners can be covered under one insurance policy. If one of the borrowers dies, the coverage continues on the other person, and if both die simultaneously, the policy pays off the mortgage.
A caveat in this insurance policy is that if the borrower’s death is due to suicide within the first two years of the policy, the mortgage life insurance policy will not take responsibility for the payment.
A huge positive of the mortgage life insurance is the peace afforded the family members that come with the awareness that any unfortunate eventuality would not negatively impact the family’s finances as the mortgage would be paid off anyway.
Mortgage Life Insurance Example
Suppose an individual dies with a debt on the mortgage loan yet to be repaid. In that case, the responsibility for the payment will be taken up by the insurers if the said individual had been signed up for mortgage life insurance.« Back to Glossary Index