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IMC Financial Services - Montreal / Articles  / Disadvantages of Buying Mortgage Life Insurance

Disadvantages of Buying Mortgage Life Insurance

Generally speaking, there are four reasons why mortgage life insurance isn’t a good deal for every family. Most important of those factors is the fact you can get a comparable term life insurance policy which will cover the cost of your mortgage and provide a cash benefit for your family – and all for around the same price or even less in most cases.

Key Disadvantages of Mortgage Life Insurance

Here is a summary of each of the disadvantages which come with this type of coverage:

Mortgage life insurance is a decreasing benefit.

Mortgage life insurance premiums are a fixed rate, but the payout is generally fixed to your mortgage principle*. Because of this, the value of the policy decreases as you repay your mortgage. Buying a standard term life insurance policy, on the other hand, gives you a fixed premium and a fixed payout. You know exactly how much will be paid out in the event you or your loved one dies. *Some newer mortgage protection or mortgage life insurance policies pay out at a fixed rate for the first few years, then decrease as time goes on, and some pay out at a fixed rate. Read the terms closely before making a purchase.

Mortgage life insurance policies benefit lenders more than the insured party.

 It is important to note your family will not actually see any of this money from this insurance policy. The mortgage lender is the policy beneficiary and if you die the bank will receive the life insurance payout which will be used to repay the mortgage in full. The benefit for your family is a house paid in full.

You have no control over where the life insurance settlement goes.

As mentioned in the above paragraph, the life insurance settlement is automatically sent to the bank to cover the terms of the mortgage. Not having a mortgage may give you peace of mind, but it may not actually be the best use of your funds at the time. A traditional term life insurance policy gives you better control over how to use your life insurance settlement. For example, if you have a lot of debt at a higher interest rate it may be more prudent to repay the debt before repaying your mortgage.

Mortgage life insurance is expensive for the amount of coverage.

 The premiums you pay at the beginning of your mortgage are probably in line with the amount of coverage you are receiving, but as time goes on, you receive much less coverage for the money. You are more than likely better off going with a term life insurance policy and getting sufficient coverage to pay off your home in full if it is your goal. Be sure to get multiple life insurance quotes before purchasing your life insurance policy.


Article By: Ryan Guina from cashmoneylife.com

Attribution:Disadvantages of Buying Mortgage Life Insurance