Insurance Tidbits:

Is Mortgage Life Insurance a Good Decision?

Get a Life Insurance Quote now!

You have just bought a new home.  Now you are being overwhelmed with offers for mortgage life insurance.  These policies promise to pay off your mortgage in the event of your unexpected death.  The question- Should you invest in one of these policies?  The answer- Probably not.

Mortgage life policies are very simple.  The initial benefit amount is based on your mortgage.  As you pay down your mortgage, the policy benefits drop to remain in line.  The premium for most mortgage life policies is based on a constant monthly rate.  Although your coverage begins to go down, your premium remains the same.  This is one of the greatest disadvantages of a mortgage life policy.  As time passes, you get less coverage for your premium dollars. 

Another disadvantage is the lack of flexibility of mortgage life policies.  For example, some policies require that you name your bank as the beneficiary.  This means that you have no choice how to spend the proceeds of the policy.  What happens if you need the money for something else (i.e. funeral expenses, college education, etc…)?   Furthermore, mortgage life policies do not help with income replacement.  Since income replacement is a primary reason to purchase life insurance, a mortgage life policy may not meet all of the financial needs of your family. 

So what should you do?  No one wants to leave the burden of a mortgage on their family should they unexpectedly die.  There are other types of life policies that may better serve your needs.  Level term life policies are one option.  These policies typically provide the greatest amount of coverage for the lowest premium.  Other options include Whole Life and Universal Life.  These policies offer cash accumulation options that provide an opportunity to save for other goals.  All three types of policies allow you to name the beneficiaries and to determine how the proceeds are spent.  These policies also offer other advantages not available with a mortgage life policy.  In many situations, a combination of policies may be warranted.  To ensure you get the proper coverage for your needs, you should consult a knowledgeable agent.

Jon Gardner, CPCU is an Insurance and Financial Services Agent with Farmers Insurance who offers complimentary insurance evaluations.  His office is located at 27907 Smyth Dr., Suite #101 in Valencia.  He can be reached at (661) 775-9244