When looking for life insurance options, you may come across two different insurance products: mortgage insurance and term life insurance. Mortgage insurance is designed to pay off your mortgage if you pass away. On the other hand, term life insurance offers your chosen beneficiary a one-time payment in the event of your death. Unlike mortgage insurance, this money can be used however your beneficiary sees fit.
What is Mortgage Life Insurance?
Mortgage insurance provides coverage to mortgage borrowers and is designed to payoff or pay down a mortgage if you die. The insurance proceeds are applied to the mortgage balance, which will ultimately allow your family to stay in their home.
What is Term Life Insurance?
Term life insurance provides your selected beneficiaries with a lump sum, tax-free payment to use however they want should you pass away. When purchasing term life insurance, your premiums are fixed and guaranteed not to increase for the length of the policy term.
What is the difference between Mortgage Insurance and Term Life Insurance?
When deciding between term life insurance and mortgage insurance, it’s essential to understand the key differences to make an informed choice. Here are five important differences to consider:
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Price: Term life insurance is generally more affordable for the same coverage amount compared to mortgage insurance.
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Coverage Amount: Mortgage insurance coverage decreases as you pay off your mortgage, while term life insurance provides a fixed coverage amount regardless of your mortgage balance.
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Underwriting: Term life insurance is underwritten at the time of application, whereas mortgage insurance is underwritten at the time of claim. This has posed issues for mortgage insurance claimants.
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Beneficiary: With term life insurance, you select the beneficiary. In a mortgage insurance policy, the lender is the beneficiary of mortgage insurance. The lender will use the policy’s payout to cover the remaining mortgage balance.
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Contract Duration: Mortgage insurance typically renews when the mortgage renews. On the other hand, term life insurance offers longer, more stable terms without changes in price or coverage.
What Type of Life Insurance is Right for me?
Choosing the right type of life insurance depends on several factors, including your financial goals, budget, and the specific needs of your dependents.
Term life insurance provides more flexible coverage and allows your beneficiary the freedom to utilize the proceeds as they see fit, with no restrictions.
At Oracle RMS, our licensed life insurance advisors can take a detailed look at your individual circumstances, and work with you to help you obtain the best life insurance policy for your and your loved ones.
