Mortgage Protection Life Insurance - A Home Saver - cont
Insurance to cover your mortgage can save your home.
Since the mortgage protection life insurance is tied to the principle of the mortgage—rather than the value of the home—it is not affected by falling housing prices. The value of mortgage protection life insurance is recession-proof.
Some homeowners think that in the event of their death, the family could simply sell the home to pay off medical expenses and other debt. During a period falling home prices, however, the surviving members of the family might find that they are “upside-down” with respect to their home loan. In other words, the value of the home is lower than the amount owed on the mortgage. This is also known as having negative equity. In cases of negative equity, the home cannot be sold for a profit to retire debt.
Mortgage protection life insurance solves the negative equity problem. The mortgage protection life insurance is guaranteed to pay off the mortgage no matter what the house is worth. The mortgage retired, family members can sell the home for a lower-than-hoped-for price and still realize a huge profit and in turn these profits can be used to pay medical expenses and retire debt.
Types of mortgage protection life insurance
Consumers interested in mortgage protection life insurance have two choices: level term insurance and decreasing term insurance.
Level term mortgage protection life insurance is designed for homeowners with an unchanging principle balance. Commonly this occurs when the homeowner has an interest-only mortgage. As the name suggests, with an interest-only mortgage, the homeowner pays the interest on the loan. The principle balance remains the same throughout the term of the mortgage. Because the mortgage principle does not change, the amount of the mortgage protection life insurance benefit remains the same throughout the term of the coverage.
Decreasing term mortgage protection life insurance is for homeowners with fixed-rate loans or adjustable-rate loans in which the loan principal is reduced over time. Since the amount needed to pay off the mortgage decreases, the amount of the mortgage protection life insurance benefit decreases as well. The two sums—the principle balance and the death benefit—are matched throughout the term of the insurance. When the mortgage protection life insurance policyholder pays off the home loan, the amount of the benefit becomes zero.
There is no surrender value on either type of mortgage protection life insurance policy. Once the mortgage is paid off or the property is sold, the policy becomes void. For this reason, mortgage protection life insurance is less expensive than most traditional life insurance.
Hurdling the health barrier
The cost of traditional life insurance is calculated based on the policyholder’s health and life expectancy. Young, healthy people have lower premiums than young unhealthy people, older healthy people, and older unhealthy people. Because of existing health conditions, some people find they do not qualify for traditional health insurance. They are uninsurable. Others are insurable, but the premiums are so high that they cannot afford them. In these cases, traditional life insurance cannot be used to protect a home. Many people who cannot afford traditional life insurance find that they can easily afford mortgage protection life insurance.
Mortgage protection life insurance is often dismissed as inflexible compared to traditional life insurance, but the truth is that many life insurance beneficiaries use the money to pay off their homes. Mortgage protection life insurance guarantees that the pay-off will be made in a timely, cost-effective, and hassle-free manner at a time when family members have little inclination to engage in large financial transactions. In worst case scenarios, mortgage protection life insurance may be the only thing that keeps a family from losing its home. It can be a home saver.