Life Insurance to cover your mortgage can save your home.

Mortgage protection life insurance can be a lifesaver—not for the mortgage protection life insurance policyholder, of course, but for the mortgage protection life insurance policyholder’s family. Mortgage protection life insurance eliminates the risk of your family losing its home in the event that you die before your home mortgage is paid off.

Financial health during a terminal illness

Mortgage protection life insurance can also protect your home in the event that you are diagnosed with a terminal illness. Mortgage protection life insurance policies can be written to include a terminal illness benefit. The terminal illness benefit will pay off the mortgage while the mortgage protection life insurance policyholder is still alive.

The terminal illness benefit eliminates the burden of making monthly mortgage payments when the mortgage protection life insurance policyholder is no longer able to work or earn money due to the terminal illness. The peace of mind provided by mortgage protection life insurance can be a great comfort to a terminally ill patient. It allows the mortgage protection life insurance policyholder to rest easy, knowing that he or she has left the family a home that they own free and clear. It is a final gift to loved ones—a legacy of love and financial foresight that the mortgage protection life insurance policyholder can take great comfort in as his or her end approaches.

A mortgage protection life insurance terminal illness benefit also relieves stress on the terminally ill person’s family at a time when they have a great deal on their mind. Caring for a terminally ill family member and preparing for a future without him or her is one of the most stressful situations a family can face and doing so while struggling to save the family home can be overwhelming. A mortgage protection life insurance policy eliminates the worry of where the money will come from to make mortgage payments.

A financial control

Some people question that wisdom of mortgage protection life insurance because it limits a family’s options after the death of the mortgage protection life insurance policyholder. It is true that options are limited, but this is a major benefit of mortgage protection life insurance. A mortgage protection life insurance policy serves as a kind of financial control.

A standard life insurance benefit could be used to pay off a mortgage, but it also could be used for other purposes. Beneficiaries might choose to invest the death benefit, believing the return on the investment would be greater than the interest paid on home loan. The return on the types of investments that would outperform, say, a 5-7 percent mortgage interest rate cannot be guaranteed. In addition, grieving family members often do not make the best investment decisions. Add to the mix the fact that unscrupulous financial advisors may attempt to take advantage of grieving family members, and you have a recipe for financial disaster. The family may lose the life insurance death benefit and have nothing left to repay the mortgage.

Mortgage protection life insurance guarantees that the family will have a roof over its head no matter what financial decisions grieving family members make. Mortgage protection life insurance allows the policyholder to extend his or her decision-making power after death. He or she will enjoy the peace of mind of knowing for years—and even decades—prior to death that his or her death benefit will be used to secure a home for the family. The family’s largest asset will not fall prey to bad judgment or financial predators.

Recession-proof value

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.

Low-cost alternative

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.