What is mortgage life insurance?


Mortgage life insurance is insurance that will pay your mortgage in the event that you die before you fully pay off your mortgage. This means that if you die, the mortgage life insurance will kick in and pay for the amount that is outstanding in your mortgage.

This insurance protects your heirs (such as your spouse and children) from having to foreclose your home because they no longer have the capacity to pay for the mortgage.

Mortgage life insurance is an optional insurance but it is very handy to have especially if you are the breadwinner of the family and your family has no other means of income. They may be faced with the forfeiture of your house and may be left homeless when you die unexpectedly and before the mortgage on your house is paid.

The amount of mortgage life insurance is adjusted based on the level of mortgage or debt at any given point in time. At the beginning of the policy, the insurance amount should be equal to the outstanding loan. Then, as you slowly pay off your mortgage, the level of mortgage life insurance decreases. The coverage will be terminated when the mortgage is fully paid.

What happens is the insurance company computes for the annual rate at which the insurance amount decreases. This should be approximately the same as the capital outstanding you will have for every year. Then the insurance company will base their premium rates on that amount.

Aside from the insured's unexpected death, some mortgage life insurance companies also provide protection against a terminal illness where the insured is projected to die within a year of diagnosis.

There are also other alternatives to mortgage life insurance. You can opt to buy decreasing term life insurance or the level premium, level benefit term life insurance.

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