Mortgage life insurance is an insurance policy that will pay off a mortgage in the case of the death of the individual taking out the insurance policy. In some cases, the policy will also pay in the event of disability or incapacitating disease.
Mortgage life insurance is strictly voluntary. It should also be understood that mortgage life insurance pays off the remaining amount of mortgage only, it does provide any cash to the individual's survivors. For this reason it is considered to be narrow coverage insurance - covering only a single specific event for a specific purpose.
Alternatives to Mortgage Life Insurance
Other forms of life insurance, while not specifically for paying off a mortgage, are good alternatives to mortgage life insurance. Simple level premium, level benefit term life insurance can be taken out in the amount of a mortgage for the 30 year life of the loan. This term life would have the advantage over mortgage life insurance that as the loan balance declined, there would be a cash benefit to survivors (for example, if the insurance were taken out to cover a $200,000 mortgage, and the balance at the death of the individual taking out the insurance was $100,000, there would be $100,000 left over for the survivors after the mortgage was paid off.). An additional benefit of term life is that it does not have to be used to pay off the mortgage. Term life insurance is also typically less expensive than mortgage life insurance
It is better for consumers to review their total life insurance needs rather than just trying to cover narrow purposes. It is important to remember that not only may a mortgage need to be paid off when someone dies, but their income may also need to be replaced, and college tuition provided for. For this reason, all life insurance needs should be considered and individuals should look to take out enough life insurance to provide for adequate financial protection for all of the needs of their survivors. A financial planner or insurance agent can typically help with an insurance needs analysis to determine the proper level of life insurance coverage to maximize financial protection..
There are also life insurance calculators to help individuals to determine what kind of coverage they need to payoff a mortgage, provide for children's education, and provide survivors with income, including: