Mortgage life insurance could pay off your home

Mortgage life pays if you die or disabled. Is it a good buy?

Anyone buying a home can quickly get overwhelmed with the number of fees that pile up on top of the actual cost of the house itself. In addition to the usual closing costs, there are additional sums that are tacked on to the principal and interest, such as property taxes, private mortgage insurance (PMI) and whatnot. No one likes to pay these extra costs, and most people do what they can to minimize them. After all, most of them don’t provide any additional value; they are just additional drains on your pocketbook.

One “extra” that may be worth your while is mortgage life insurance or mortgage disability insurance, as it is sometimes known. This is an extra insurance policy that is sold to you by your lender when you purchase a home. In exchange for the premiums that you pay along with your monthly payment, pay off your mortgage should you die or become disabled. This could be a tremendous help to a lot of homeowners, especially young ones with a family.

Should you buy it? That depends.

There is no question that if you are a young homeowner with a family, some sort of insurance would be a good idea. It always makes sense to provide for your loved ones should something happen to you. On the other hand, mortgage life insurance may or may not be the best deal for you. True, it will pay for your home if you die or become disabled. And the premiums are not too unreasonable. But the policy covers one thing only - your house. If you die or become disabled, it will pay off your house. And that is that. While that will certainly relieve your family of a huge financial burden, that may not be your best course of action.

If you are young and relatively healthy, you may be better off purchasing a term life insurance policy instead. The premiums for someone who is under 40 and a nonsmoker are probably less than those of the mortgage life insurance. And you family will receive the proceeds from a term policy, rather than the mortgage company. They may use the money as they see fit, as opposed to being forced to use the proceeds to pay off the house. Plus, with term life insurance, you can purchase additional coverage over and above the amount necessary to cover the value of the mortgage, which you cannot do with mortgage life insurance.

On the whole, term insurance is probably cheaper and more flexible for most homeowners, so you might consider talking to your insurance agent for specifics. On the other hand, if you are older, have health problems, or are a smoker, you may find that the premiums for term insurance are considerably higher than they are for mortgage insurance. In that case, you might wish to go with the latter.

In all cases, you should weigh out your own needs and compare the costs. in most cases, you will probably find that the term insurance is a better buy.