Mortgage Life Insurance vs Life Insurance
Mortgage life insurance is a form of insurance specifically designed to repay the value of the mortgage only. If the policyholder were to die while the mortgage life insurance was in force, the policy would pay out a sum that will be just sufficient to repay the outstanding mortgage.
This means that as your mortgage balance decreases, your insurance coverage decreases.
If you have a mortgage life insurance policy that requires you to renew every 5 years, your premiums will rise every time you have to renew because you are older. Life Insurance premiums are based on your age, sex, and health, so of course, as you get older your premiums will increase. This means if you start out with $500k of coverage that costs you $80/monthly in premiums, 5 years later when you renew you may still be paying $80/monthly but, your coverage may only be for $400k.
Term Life Insurance is a form of insurance that pays out upon the death of the Insured. If the term is 20 years your premiums are guaranteed to be the same for that term. As you pay off your mortgage, the face value of your insurance coverage stays the same. This is very beneficial because if you now owe $350k on your mortgage plus you have some credit cards or a car loan or any other loan if you pass away your family is the beneficiary and gets paid out the coverage. Your family can use that to pay off the remaining mortgage, any debts and have money left over if there is some.
Mortgage Life Insurance pays directly to the lender for the amount of the mortgage. If you carry any other debt it will not be covered.
Term Life Insurance pays out directly to the beneficiary, bypassing any taxes for the total coverage amount.
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