Consider mortgage life insurance when you buy your first home. Everyone will likely agree that purchasing your first home is one of the most important decisions you will likely make. Many thoughts go through your mind at this time. You look forward to living in the house you are about to buy, you furnish and decorate it in your mind, you are satisfied that that is what you want to do, but you also wonder if you are doing the right thing. You are well prepared though.
You have taken the time to save a decent sum of money and you thus make a substantial down payment. You have sufficient to pay all the costs related to the transaction and, in addition, you have enough to buy furniture. You know you have to insure your valuable piece of property in case of fire, hurricane, flood etc.
You have made certain that your income is sufficient to make the mortgage payments and cover the other incidentals. You decide to buy your house. There is, however, one more thing you need to look at…mortgage life insurance.
A mortgage life insurance policy will pay off the amount owed to the bank or mortgage company. Here are your choices.
Decreasing Term Life Insurance
The most popular option you have is to buy decreasing term life insurance. This policy will pay off your balance owed in the event of your death. The premiums are quite inexpensive and are level for the duration. The face amount of your policy, however, decreases each year as the amount you owe on your new home decreases. This policy was designed with your mortgage in mind.
Level Term Life Insurance
The decreasing term policy completely pays off your mortgage at the point of your death, regardless of when or how you die. You can use a level term policy to do the same thing but with a slight twist.
If you buy your policy and die in the first year your mortgage is paid off. Let us suppose, though, that you die in the fifth or tenth year and you own a level term policy which you use for mortgage protection.
You bought a 20 year term policy when you bought your home as you had a 20 year mortgage. You die in year 5 or year 10, for example, and your policy will pay the full face amount. This will be more than you owe the bank or mortgage company. One of the reasons you would use level term is to provide a little extra to your loved ones in the event of your death. This may come in handy to pay funeral expenses or possibly to pay college costs for one of your children.
Permanent Life Insurance
Sometimes buyers use permanent life insurance for mortgage protection. The premiums are considerably higher but your policy may provide an added benefit, one that term policies cannot provide.
Permanent policies have cash values and also accumulates dividends if the company performs well. At some point these cash values plus dividends equal the amount owed on your home. What you can do is to take the cash out of your policy and use it to pay off your mortgage. If you plan on using permanent policies for your mortgage life insurance needs you should keep in mind that although the cash values are guaranteed the dividends are not.
Here is some information on mortgage life insurance: http://www.life-insurance-answers.net/mortgage-life-insurance.html
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