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Mortgage Protection Insurance: What To Know Before You Buy

Key Takeaways:

  • Mortgage protection life insurance specifies your mortgage lender as the policy’s beneficiary.
  • Suppose you die during the policy’s term. In that case, the lender uses the mortgage protection death benefit to receive compensation for the rest of your mortgage.
  • Another name for mortgage life insurance is term life insurance. It’s usual to buy a policy when you purchase your home or soon after.
  • If one dies without having mortgage insurance, their loved ones may struggle to pay off debts.
  • It’s crucial to talk to asset protection consultants as they will guide you through choosing and getting the best mortgage protection.

Mortgage protection insurance is a type of life insurance policy that can protect you in a financial emergency. It can help pay your mortgage if you cannot do so yourself. However, before you buy mortgage protection insurance, there are some things you need to know.

Suppose you’re looking to get mortgage protection insurance for yourself. In that case, you should consult asset protection consultants to get the best guidance and fully understand your options. Let’s discuss mortgage protection insurance and what to look for when buying it to help you realize some essential details beforehand.

Mortgage Protection Insurance Explained

Mortgage protection insurance pays your mortgage if you die before paying it off. Although this policy can save your home from foreclosure, it might not be the best life insurance available.

Mortgage life insurance specifies your mortgage lender as the policy’s beneficiary. If you die during the policy’s term, your loved ones will not receive a death benefit. The lender instead uses the mortgage protection death benefit to wipe out the rest of your mortgage.

Mortgage protection insurance payments remain the same each month. Still, as you pay off your mortgage, the value of your policy decreases.

Are you looking to improve your mortgage affordability? How to improve your mortgage affordability?

How Does It Work?

It’s usual to buy mortgage life insurance when you purchase your home or soon after. The policy’s length will equal the years left on your mortgage.

There are three typical sources of mortgage protection insurance. These include the mortgage lender, an insurance company affiliated with the lender, or another insurer that accesses your information through public records.

When you purchase this life insurance from your mortgage lender, the premiums can be included in your loan. The mortgage lender is the policy’s beneficiary instead of your spouse or another person you choose. It means that they will get paid by the insurer with what is left of the mortgage balance if you pass away. Your family would not receive any money in this case.

Another choice is a life insurance policy that will assist with paying off your mortgage once you die. You could choose a traditional term life policy with a face value equaling or exceeding the amount of your mortgage left unpaid.

If you were to pass away during the policy’s active period, those named as beneficiaries would receive the death benefit payout. They can also elect to use it toward repaying the mortgage.

Your beneficiaries can utilize a term life insurance benefit for anything. Still, if you want the mortgage to be paid off first, you should indicate that in your will.

Are There Any Restrictions To Mortgage Protection Insurance?

Mortgage life insurance operates under the premise that the mortgage lender will get paid off in case of your death rather than your loved ones receiving a death benefit.

Death is unpredictable and often challenging to plan for, which is why having a life insurance policy is so important. If one dies without having one, their loved ones could be left struggling to cover funeral costs or pay off debts. An insurance policy can help take care of all of that and more.

If the restrictions of mortgage insurance sound daunting, consider a standard term life insurance policy instead. Make sure the face value is at least equal to your mortgage amount.

What Does Mortgage Protection Insurance Cover?

Mortgage life insurance is a type of life insurance that pays off your mortgage after your death. It is different from other types of life insurance as it does not provide financial assistance for final expenses, childcare, or future education costs. A life insurance policy’s death benefits go straight to the mortgage lender instead of your loved ones.

Advantages Of Having This Insurance Policy

Mortgage life insurance offers policyholders and their families the peace of mind of knowing the mortgage will be paid off. Other types of coverage may also provide for the mortgage payment in the event of death. Still, benefits from mortgage life insurance are paid directly to the lender.

No Medical Examination

Mortgage life insurance offers protection for your family during your death. It generally does not require a medical exam or any health questions. Therefore, if you cannot get traditional life insurance because of a pre-existing medical condition, mortgage life may be an alternative worth considering.


Some benefits you may gain by adding life insurance riders to your policy include the following:

  • Life insurance with living benefits allows the policyholder to access money from the death benefit if diagnosed with a terminal illness.
  • The return of the premium life insurance rider would give you your premiums back after a set amount of months. Consult the rider for more details on this process and when it occurs.
Mortgage Protection Insurance: What to Know Before You Buy

Mortgage Insurance Vs. Term Life Insurance

Term life insurance is not the best way to get life insurance for a mortgage; there are other options. Mortgage life insurance is one such alternative.

Term life insurance offers your family more leeway with how the death benefit is spent. You can select a coverage term that lines up with when your mortgage will be paid off. Or, you could also base it on other money-related commitments like your kids’ future college costs or how much income you want to leave behind.

Mortgage life insurance exists for one main reason: To pay off your mortgage. In most cases, you can only cover a portion of your mortgage. Mortgage life insurance doesn’t provide much room for error or changes in coverage amount over time, though, because it is specific to mortgages.

Suppose later you realize that your family needs more financial support than initially determined. In that case, this type of insurance cannot help you because any money given out goes directly to the mortgage lender.

You can choose the payout amount and policy length that works best for you with term life insurance. The money goes to the beneficiary of your choice, such as your spouse, who can use it however they see fit. Your family may be able to use a term life insurance payout for:

  • To pay off your mortgage.
  • To credit card or other debt.
  • For your children’s college costs
  • Income replacement
  • To cover funeral and final expenses.

Compared to other life insurance policies, term life insurance gives you the most value when looking to cover debts, such as a mortgage.

It’s crucial to contact asset protection consultants, as they will guide you through choosing and getting the best mortgage protection. They’ll advise you on the type of insurance policy that works best for you and your family.

Family First Life – Strong Tower & Hammer Lane Consultants provide professional asset protection guidance and help clients get insured in Fort Worth, TX. Get in touch today for more information!