Archive for August 14th, 2012

Mortgage Life Insurance

Life Insurance is a way to protect your family in the event of an untimely death with future financial support.  One way to protect your family’s future is to purchase Mortgage Life Insurance.  It is a type of insurance that is designed to protect a family’s home in the event that the borrower passes away.  If a policy is in place while the borrower/mortgagor passes away, the outstanding balance of the mortgage will be paid by the policy.

This type of policy is not the same as a traditional life insurance policy.  A traditional life insurance policy pays a death benefit to the surviving beneficiaries when the named insured passes away.  The Mortgage Life Insurance policy only pays out if the policy is in place while the mortgage itself is still outstanding.

There are two types of Mortgage Life Insurance policies that are typically offered.  The first being decreasing term insurance and the second being level term insurance.

  • Decreasing Term Insurance:  A type of life insurance where the death benefit on the policy decreases over the term of the policy.  This amount typically matches the mortgage loan term.  The premiums are fixed throughout the life of the policy even though the death benefit decreases each year.  The premiums are usually lower then a Level Term policy.

Example: A married couple with three children has a $250,000 mortgage for 30 years; you should get a 30-year term life insurance policy in the amount of two hundred and fifty thousand dollars which names your spouse as the beneficiary. In case of your death, your spouse can pay off the mortgage, and your family does not lose the home.

  • Level Term Insurance:  A type of life insurance where the death benefit on the policy stays the same or level for the life of the policy.  The starting amount typically will coincide with the mortgage balance and unchanged throughout.  The premiums are usually higher then a Decreasing Term policy and stay the same throughout the life of the policy.

Example:  You are married and have purchased a new home with a mortgage of $150,000 for 20 years; you should get a 20-year term life insurance policy in the amount of one hundred and fifty thousand dollars which names your spouse as the beneficiary.  In the case of your death, your spouse can pay off the mortgage, your family does not lose the home and there may be some money left over for the beneficiary.

Submitted By: Nick Hage, Assistant Manager/Agent for Citizens David Hirth Agency

Investment and Insurance products:

  • Are Not Insured by the FDIC or any other federal government agency
  • Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
  • May lose value
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