What is Mortgage Life Insurance?
Mortgage life insurance is an insurance policy which fully repays the balance of a mortgage in the event the borrower dies.
How Does Mortgage Life Insurance Work?
Mortgages have long-term horizons -- usually 30 years. Given such a substantial amount of time, a borrower could conceivably die before his or her mortgage is paid off. Mortgage life insurance behaves like a traditional life insurance policy in that it promises to make a single cash payment if the holder passes away. Rather than paying the sum of money to surviving beneficiaries, the insurance provider makes a direct payment to the deceased's mortgage lender to cover the total outstanding balance.
For example, if a policyholder dies with a $120,000 balance remaining on his or her mortgage, the insurance provider will pay $120,000 to the lender to fully repay the loan.
Given the diminishing nature of mortgage balances, insurance providers typically offer two mortgage life insurance plan options. One option, called decreasing term insurance, charges progressively lower premiums corresponding with decreases in the balance of a policyholder's mortgage as time goes on. The second option, called level term insurance, follows a traditional premium structure and offers the same benefits each year.
Why Does Mortgage Life Insurance Matter?
Mortgage life insurance ultimately protects a policyholder's heirs from losing their home. It should be noted that if a policyholder dies following the full repayment of a mortgage, the insurance provider makes no payment even though the policy may still be active.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.
Read This Next
Believe it or not, investing can be a lot like putting your wardrobe together. You can mix and...
Read More →
George Soros may have made a billion dollars short-selling the pound sterling (earning him the title of "The Man Who Broke the Bank of England"), but what he really wanted to be was a philosopher...
Read More →
Not every scam is like the complicated set-up in The Sting. Con jobs can nickel and dime you over time, like the slow leak of management fees from a long-term...
Read More →
One of the most widely accepted principles of investing is you must diversify to reduce risk....
Read More →
The United States has become a nation of savers. Where once the money management mantra was "invest it and retire...
Read More →
