For most of us, buying a home is an important financial decision, and our home is also the most valuable asset we own.
As a means of ensuring that your family will be able to keep their home if you should die, you might want to think about getting mortgage life insurance when you purchase your first home. It will provide the funds that will enable your family to remain in their home, even when the income you provided for them is no longer there. Read also: Be a Wise Homeowner and Buy Mortgage Life Insurance.
This insurance, which may be online life insurance, insures the mortgagor’s life, and if he or she dies, this policy pays the remaining mortgage balance in most cases. The policy may also have a provision covering involuntary unemployment, and in that case, the insurer guarantees tht the mortgage payments will be kept current until the borrower is employed once again.
Why you may need to buy it?
Life insurance on the borrower may be required, in some cases, in order to obtain a mortgage on a new home. As a rule, this happen when the mortgagor is unable to make a down payment that is large enough to meet the requirements of the lending institution when applying for a mortgage. To protect the lender, these insurance premiums may be required along with the monthly mortgage payments.
In the insurance industry, private mortgage insurance (PMI) is actually life insurance on a mortgagor. Certain regulations, which are contained in the Homeowners Protection Act (HPA) of 1998, allow mortgage holders to terminate their mortgage insurance when they have acquired 22 percent equity in their home. Among financial institutions, the standard has been established that if a borrower cannot make a 20 percent down payment on a home, this type of insurance should be required when providing a mortgage. Read also: Why Seniors Need Life Insurance?
What this insurance covers
When you take out a policy, it provides coverage that equals your outstanding mortgage balance. For instance, if you have a $250,000 30-year mortgage, you would take out a 30-year policy worth $250,000. In addition, the typical mortgage life insurance policy comes with a level premium for the time the policy is in force. As the mortgage balance decreases, the policy’s death benefit remains level, and when it has been in effect for an extended period and the policyholder dies, it can be used for other purposes.
Insure.com reports that if you decide to buy mortgage life insurance, your insurer may only provide it within the first two years after closing escrow. However, note that a few insurers will let you purchase it during the first five years after closing. Read also: Understanding Your Life Insurance Options.
What can happen if you die
Without this coverage, which can be online life insurance, or another type of policy, your family may lose their home if you should die. They may end up selling the home and moving into a smaller one, perhaps an apartment. Alternatively, a stay-at-home spouse previously focused on raising the children may be forced to work outside the home in order to keep up with the mortgage payments.
Other options
Although this type of policy only lasts for a specified period, some plans include an option to convert the policy into another type of insurance, including whole life. This feature enables policyholders to have life insurance coverage when their mortgage is paid in full, even if they develop a serious medical condition, such as heart disease or cancer.
What you should know
Due to recent changes in the mortgage industry and the growing competitiveness of term life insurance, you may want to choose a fixed term life insurance policy that equals the amount of your mortgage. That way, if you should die before your insurance term expires, the proceeds can be used to repay the mortgage, and your heirs will receive a lump sum payment of the balance, if any. Read also: Who Can Benefit From Term Life Insurance?
Mortgage protection and life insurance premiums may also be financed as a portion of your total loan package. If this is done, your lender will take part of every mortgage payment and use it for payment of your life insurance premium. This kind of setup will provide security for the lender because your life insurance premiums will be kept current automatically.