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Many new home owners or individuals who decide to refinance their mortgage are told they should purchase mortgage life insurance to cover their loan. This may be a suitable option. However, you should consider other possibilities as well. For example, you may end saving money and receiving life insurance coverage by choosing to purchase a term life insurance policy rather than mortgage insurance.
The Definition of Mortgage life insurance The majority of lending institutions and banks offer mortgage life insurance which is also known as creditor insurance or mortgage insurance. Mortgage life insurance is a type of policy that will pay off the balance of your mortgage loan to your lending institution when the individual listed on the mortgage dies. Using Term life insurance to Cover Your Mortgage You need to consider all of the money your family will require when you die when you purchase term life insurance. Therefore, you should include your mortgage payments in this amount. Difference Between Term Life & Mortgage life insurance * Lower Cost of Term life insurance Normally, mortgage life premiums are much more expensive than the premiums for term life insurance. Of course, this will depend on your general health and your age. Therefore, you will most likely receive a lower rate if you choose to purchase a term life insurance policy to cover your mortgage instead of a mortgage life insurance policy offered by your lender. Obtaining mortgage insurance is often more convenient, but it can be more expensive than a term life insurance policy. * Additional Coverage Included with Term life insurance You also have more flexibility and additional coverage when you select a term life insurance policy instead of mortgage life insurance. The bank will automatically be named the beneficiary of any mortgage insurance policy. On the other hand, you can designate a family member as the beneficiary of a term life policy. This means that your family will receive all of the proceeds of your term life policy if you die while the policy is in effect. They will have the flexibility to use the proceeds to invest and save for the future or to pay off any outstanding debts. With a mortgage insurance policy, the amount of coverage will always correspond to the exact amount you owe your bank or lender. As the amount of your mortgage loan decreases, so does the corresponding amount of coverage. This is referred to as a reducing balance. However, if you decide to purchase a term life insurance policy, your level of coverage remains constant for the entire term. Consequently, you receive better value for your monthly premium payments. Make sure you purchase some type of life insurance when you buy a new home. You should weigh the advantages and disadvantages of mortgage life insurance versus term life insurance. Although mortgage life insurance may be more convenient to obtain, it costs more and provides a decreasing amount of coverage. Term life insurance costs less and provides additional coverage and flexibility. |
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