Pros and Cons of Mortgage Life Insurance
Mortgage life insurance is a type of life insurance wherein the policy holder is able to clear mortgage liabilities in the event of the untimely death of the insured. In such a case, death benefits are equivalent to the outstanding balance on the loan. Quite clearly, this security gives tremendous peace of mind that no matter what, despite the worst case scenario, your family will always have a home to live in. Apart from that, many mortgage life insurance policies offer optional provisions which include coverage for critical illness. With this option, the insurance company will pay out the outstanding loan in case you qualify conditions for terminal illness.
However, it is vital to examine the pros and cons of mortgage life insurance before you make up your mind about purchasing a mortgage life insurance policy. One of the major advantages of mortgage life insurance is that it is easy to obtain. In these days of uncertainty and insecurity, it may make sense to opt for a mortgage life insurance policy to make sure your loved ones have a home to stay in, even if, anything were to happen to you.
Here are some advantages and disadvantages of a mortgage life insurance to help you make an informed decision:
Advantages of Mortgage life insurance
- Guarantees clearing your mortgage payment:
The death benefit of mortgage life insurance pays off the outstanding balance on your mortgage, and thereby guarantees a home for your family in case of your death. What is also important to note is that, unlike a regular life insurance policy, death benefits from a mortgage life insurance policy is not paid to your loved ones but goes directly to the mortgage company towards the payment of your outstanding mortgage. This is useful to ensure that death benefits are used primarily for the purpose of clearing off the mortgage. - Health qualifications for a Mortgage Life Insurance are considerably lower than qualifying for a regular life insurance policy:
The health standard to meet to buy mortgage life insurance is much lower than a regular term life insurance policy. If you are in bad health then a regular life insurance policy may require you to pay higher premiums. If you suffer from severe health impairments, you may not even qualify for regular life insurance. In such cases, mortgage life insurance is a very viable option for you. It gives you peace of mind by allowing you to get coverage for what is probably your biggest liability—your home. - Financial help during terminal illness:
Mortgage life insurance policies may provide protection coverage in case of terminal illness, provided, your mortgage life insurance includes terminal illness benefits and you opt for it. This indeed comes as great savior for the policy holder who contracts a terminal illness and can no longer work or earn money to pay the monthly mortgage. In such cases, the mortgage life insurance company will provide accelerated death benefits to pay off the mortgage.
- No payout until the stipulated time period is passed:
Regardless of the situation there is no payout within the first six months of the policy. So in case any calamity strikes the insured before the stipulated time, the insured will not receive anything. - Mortgage life insurance coverage decreases with time:
In case of your death, the amount of cover will depend on the term of life insurance, which decreases more or less in line with the amount outstanding on your mortgage. As a result, you end up paying more for less coverage over the years. That essentially means by the end of the plan, there will be no benefits if you outlive the policy. - Excludes any Pre-existing medical condition:
Any pre-existing medical conditions (terminal or otherwise) before the investment are excluded in the policy. Therefore, such conditions cannot be claimed if the situation arises. - Fixed monthly premiums
Although insurance cover reduces with time the monthly premiums still remain fixed throughout the life of the policy.
Mortgage life insurance may never be considered as popular as universal, whole or term life insurance policies. However, there are some situations where you may want to consider purchasing a mortgage life insurance policy. By purchasing mortgage life insurance, you ensure your home remains a safe haven for your family and they can enjoy many more happier years to come in safety and comfort, simply because you were able to safeguard it for them, through a mortgage life insurance policy.
About AccuQuote:AccuQuote is a leader in providing term life quotes to people across the United States. In 1986 it began operating with a single goal: to make the process of buying term life insurance as easy as possible for its customers. Their experienced professionals consistently deliver the most affordable term life insurance quote by comparing thousands of life insurance policies.
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Mortgage Life Insurance - Buying Your First Home
Consider mortgage life insurance when you buy your first home. Everyone will likely agree that purchasing your first home is one of the most important decisions you will likely make. Many thoughts go through your mind at this time. You look forward to living in the house you are about to buy, you furnish and decorate it in your mind, you are satisfied that that is what you want to do, but you also wonder if you are doing the right thing. You are well prepared though.
You have taken the time to save a decent sum of money and you thus make a substantial down payment. You have sufficient to pay all the costs related to the transaction and, in addition, you have enough to buy furniture. You know you have to insure your valuable piece of property in case of fire, hurricane, flood etc.
You have made certain that your income is sufficient to make the mortgage payments and cover the other incidentals. You decide to buy your house. There is, however, one more thing you need to look at...mortgage life insurance.
A mortgage life insurance policy will pay off the amount owed to the bank or mortgage company. Here are your choices.
Decreasing Term Life Insurance
The most popular option you have is to buy decreasing term life insurance. This policy will pay off your balance owed in the event of your death. The premiums are quite inexpensive and are level for the duration. The face amount of your policy, however, decreases each year as the amount you owe on your new home decreases. This policy was designed with your mortgage in mind.
Level Term Life Insurance
The decreasing term policy completely pays off your mortgage at the point of your death, regardless of when or how you die. You can use a level term policy to do the same thing but with a slight twist.
If you buy your policy and die in the first year your mortgage is paid off. Let us suppose, though, that you die in the fifth or tenth year and you own a level term policy which you use for mortgage protection.
You bought a 20 year term policy when you bought your home as you had a 20 year mortgage. You die in year 5 or year 10, for example, and your policy will pay the full face amount. This will be more than you owe the bank or mortgage company. One of the reasons you would use level term is to provide a little extra to your loved ones in the event of your death. This may come in handy to pay funeral expenses or possibly to pay college costs for one of your children.
Permanent Life Insurance
Sometimes buyers use permanent life insurance for mortgage protection. The premiums are considerably higher but your policy may provide an added benefit, one that term policies cannot provide.
Permanent policies have cash values and also accumulates dividends if the company performs well. At some point these cash values plus dividends equal the amount owed on your home. What you can do is to take the cash out of your policy and use it to pay off your mortgage. If you plan on using permanent policies for your mortgage life insurance needs you should keep in mind that although the cash values are guaranteed the dividends are not.
Here is an article on mortgage life insurance.
For more than 40 years Donald has been known for his extensive knowledge of the life insurance business. He has represented some of the largest and most admired life insurance companies in the United States as well as Canada. His advice is invaluable.
Donald's website is: Life Insurance Answers
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