Mortgage Life Insurance

Issues to Consider When Insuring Your MortgageWhen purchasing a new home that requires a mortgage, many consumers default to buying their life insurance from the bank or mortgage company. This type of insurance is called 'mortgage life insurance'.

Mortgage life insurance is a type of term life insurance. Term life insurance is insurance that is fairly pure insurance - a set premium in exchange for a set death benefit.With mortgage life insurance, the premiums are generally static - they don't increase over time. However, the death benefit declines as the mortgage balance is paid down. Since the death benefit only covers the mortgage, the smaller the mortgage, the smaller the death benefit.

Mortgage life insurance has a number of common faults. In many cases consumers may be better served by purchasing a standard term life insurance policy from a licensed life insurance broker than accepting the default mortgage life insurance plan from their mortgage vendor.First, mortgage life insurance is not generally shopped by consumers. Conversely it's very common to comparison shop for term life insurance rates and quotes online. As a result, term life insurance is priced very competitively from many companies. It's not uncommon to find a 30 year level term life insurance policy that is less expensive than standard mortgage life insurance.

Second, mortgage life insurance death benefits decline with the mortgage. Compare that with standard term life insurance plans where the death benefit remains level for the duration of the policy. That's a double whammy for consumers - term life insurance may have premiums that are less expensive and have a larger death benefit over time when compared to standard mortgage life insurance.

The third drawback with mortgage life insurance is that it generally isn't portable. That means if you get a new mortgage, you'll need a new insurance policy. This may be a problem if you find yourself uninsurable later in life. As a standard term life insurance policy isn't tied directly to your mortgage, you can keep the same insurance even as you move mortgages.

The best ways to determine if a term life insurance policy is a better buy for you than a mortgage life insurance policy is to shop online for term life insurance rates and quotes or talk to your insurance representative. Once you've compared prices, you'll be better prepared to compare and contrast features such as the portability, death benefits, and insurance company ratings and strengths. Armed with that information, you stand to save some money and have a better insurance portfolio.