Buying a home can be one of the biggest financial investments you will ever make in your life, which is why families carrying a mortgage should seek protection.
If you – the breadwinner of your household – were to die before your mortgage were repaid, the burden of maintaining the payments would fall on your loved ones. Life Insurance can protect your family by providing the funds needed to pay off the mortgage, ensuring your loved ones can remain in the home you worked so hard to attain.
Most mortgage lenders require applicants to have Life Insurance to ensure the debt is repaid in the event of the mortgagor’s untimely death. They may even offer you this coverage as part of a bundled solution along with the mortgage, but I recommend you consider all your options to make the best decision on protecting your family.
Term Life Insurance is one option to consider as an alternative to traditional Mortgage Insurance.
With these plans, the amount of insurance and the associated cost will remain the same throughout the life of the policy. Term Life Insurance allows you to address other financial considerations along with your mortgage, such as your child’s future college tuition or leaving a legacy to your loved ones.
Over time, your family’s financial needs may change. Traditional Mortgage Insurance offers them no flexibility in how the payout is used because this c overage is designed to pay the proceeds of your policy directly to your mortgage lender. With Term Life Insurance, the payment is shared among your beneficiaries who can use it to handle any pressing financial matters such as your mortgage, funeral expenses, or credit card debt.
If you still wish to take the mortgage payments out of your family’s hands, you can assign the initial payment from the policy to go directly to your lender – this is called Collateral Assignment.
Through collateral assignment, your mortgage lender would only be paid the amount they are owed when you die – in the same manner as with traditional Mortgage Insurance. However, if the payout from your Term Life Insurance policy is more than the amount owed to your mortgage lender, the remainder of the funds will then be divided among your beneficiaries to use as they please.
When purchasing Term Life Insurance, the monthly cost will be primarily determined by factors such as your health and your occupation; therefore, premium amounts may vary from person to person. On the other hand, premiums for traditional Mortgage Insurance plans are calculated using the amount of your mortgage loan and the timeframe in which you must pay it back to your lender.
However, if you have health issues, or if you work in a hazardous environment, you may find traditional Mortgage Insurance is a better option as there is no medical underwriting involved, but beware traditional Mortgage Insurance plans are typically more expensive than Term Life Insurance plans with the same amount of coverage. Therefore, healthy adults who work in low-risk environments could end up paying more while getting less coverage with traditional Mortgage Insurance.
Traditional Mortgage Insurance is also designed to pay off the balance of your mortgage when you die; but the main drawback of this coverage is that the bank is the only beneficiary of your policy. While this payment would eliminate the financial stress of managing mortgage payments, your family would not receive any additional funds; and could still be left with funeral bills and other burdensome debt to pay off.
Whole Life Insurance is another alternative for covering your mortgage debt. Along with the death benefit, there is also cash value which grows inside the policy over time. The cash value can be added to the death benefit to give your loved ones a higher payout if you die to ensure they can settle your affairs after you pass away.
In terms of covering specific debts (like a mortgage), I firmly believe that Term Life Insurance offers you the most value for your money because it allows you to cover more than just your mortgage. Term Life Insurance plans provide more protection, more flexibility, and is typically less expensive than traditional Mortgage Insurance.
The decision to buy Life Insurance is a deeply personal one. Be sure to compare all your Life Insurance options to find the coverage that suits you and your family best. Otherwise, you may find yourself locked into a contract that does more to protect your lender than your loved ones.
To learn more about your insurance options, contact Damir Armstrong, Life Sales Agent at Freisenbruch-Meyer by email at darmstrong@fmgroup.bm or call +1 441 294-4616.
75 Front Street, Hamilton
(441) 296-3600
fmgroup.bm
