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Mortgage Life Insurance: Good Rates for Homeowners with Medical Issues

Mortgage Life Insurance: Good Rates for Homeowners with Medical Issues

If you go through the process of applying for a mortgage, you may be offered mortgage life insurance by your lender or its partner companies. While it isn't mandatory, mortgage life insurance offers enough coverage to pay off your mortgage so that your family will not have to move if you pass away.

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If you are interested in getting life insurance to cover your mortgage, whether mortgage life insurance is the right policy for you depends primarily on your health. Young homeowners that have limited medical issues will get better quotes and greater coverage options with term life insurance. On the other hand, if you have severe enough health problems to not qualify for term life insurance, mortgage life insurance will offer larger death benefits than many alternatives.

What mortgage life insurance covers

Mortgage life insurance, or mortgage protection insurance, refers to a set of life insurance products that are designed to pay your outstanding mortgage balance in the case you pass away. This coverage is often offered by your bank or mortgage lender, but can also be purchased through unaffiliated insurers. Since so many parties offer mortgage life insurance, the structure and benefits can vary significantly.

Mortgage life insurance policies have a specified period of coverage, generally 15 or 30 years, and the death benefit can be structured in one of 3 ways:

  • Decreasing: The death benefit may be fixed for the first few years of coverage, but then decreases at a specified rate over the life of the policy. This is meant to mimic the rate at which the mortgage is paid off.
  • Mortgage Principal: Some policies tie the death benefit to the outstanding mortgage principal. This will behave similarly to a decreasing death benefit but, if you pay off your mortgage faster or slower than expected, the policy will reflect that.
  • Level: The death benefit will remain the same over the life of the policy. This may be ideal if you have an interest-only mortgage, since the principal remains the same.

Restrictions of mortgage life insurance

Unlike term life insurance, mortgage life insurance typically pays the death benefit directly to your mortgage lender. This means that if your coverage amount is higher than your outstanding mortgage balance at the time of your death, your family will not receive the excess payout.

In addition, some mortgage protection policies will only pay a death benefit if you die from an accident, similar to accidental death insurance. If this is the case, your policy would not pay out if you pass away from natural causes like cancer or a heart attack. We don't recommend this type of coverage unless your family will be able to handle mortgage payments without you given 2-3 months of preparation.

Depending on the provider, mortgage life insurance may be tied to your home or bundled as part of the mortgage. If the policy is tied to your home, you would need to get a new policy if you moved later on — and since life insurance quotes are tied to your age, this will mean a higher premium.

A mortgage protection policy that's bundled into your mortgage is even more restrictive, as you can't choose to cancel your coverage if it becomes unnecessary. For example, say you bought a policy to make sure your wife could keep your home, but you later get divorced. You would have to continue paying for an unnecessary benefit.

Term life insurance vs mortgage life insurance: Which is best for you?

Term and mortgage life insurance policies have several similarities, but term policies offer much greater flexibility in their benefits. Term life insurance policies are also significantly cheaper if you’re relatively healthy and a non-smoker.

Some of the key differences between term life insurance and mortgage life insurance are:

FeatureTerm Life InsuranceMortgage Life Insurance
Amount of CoverageAny amountMortgage principal
Length of Coverage5-35 yearsMortgage length
BeneficiaryYour choice (child, spouse, etc)Mortgage lender in most cases
Death Benefit Paid Upon...Your deathYour accidental death
UnderwritingHealth questions and medical examHealth questions (often no medical exam)

We recommend term life insurance over mortgage life insurance if you're in good health because you'll get cheaper quotes and the death benefit goes to the beneficiary you choose. That way, if there are more pressing expenses at the time of your death or your family decides not to keep the house, they can use the full payout however they choose.

Mortgage life insurance quotes are more expensive for healthy homeowners because most policies don't require you to get a medical exam prior to purchase. Therefore, mortgage life insurance companies err on the side of caution by assuming you're higher risk and raise their rates accordingly.

However, this also makes mortgage life insurance a great alternative if you have pre-existing medical conditions that prevent you from getting traditional term insurance. Pre-existing medical conditions, such as heart disease or diabetes, can often cause shoppers to be turned down for fully underwritten term life insurance. And life insurance policies with limited underwriting, such as simplified issue or guaranteed acceptance policies, regularly restrict death benefits to be less than $100,000 to $250,000. While this amount of coverage may assist your family with income replacement or the cost of college, it's not enough to also cover the average mortgage.

Other mortgage-related insurance policies

Aside from mortgage life insurance, there are a few additional policies you may hear about when obtaining a mortgage. These may be offered separately or some may be bundled, but the terms of each are quite distinct:

  • Mortgage Disability Insurance - If you become totally disabled, this policy covers your mortgage payments. Coverage can be for the entirety of the payment or just a percentage.
  • Mortgage Unemployment Insurance - Similarly, if you become unemployed for a period of time, this policy helps to cover your payments.
  • Private Mortgage Insurance (PMI) - If you get a mortgage for over 80% of your home’s value, your mortgage lender may consider you to be high-risk and require that you pay for private mortgage insurance. This policy protects your lender in case you fail to make payments.

When is mortgage life insurance a good idea?

Mortgage life insurance makes sense if you have any health conditions that could make term life insurance overly expensive. While the benefits will go entirely to your mortgage lender rather than your surviving family, mortgage life insurance is ideal if your main goal is to make sure that your home loan is paid off no matter what happens to you. Read more

Is mortgage protection the same thing as life insurance?

Yes and no. Like life insurance, mortgage protection policies pay out a benefit when the policyholder dies, but the beneficiary is always the mortgage lender - not your family or some other beneficiary that you get to designate. It's helpful to consider mortgage protection as a limited type of life insurance with more specific rules about who and how much is paid by the policy.

What's the difference between mortgage protection and PMI mortgage insurance?

Mortgage protection is an optional purchase that guards you against the possibility that you might not be around to pay off the mortgage on your family's house. Private mortgage insurance (PMI) is a coverage that lenders require when your down payment is below 20 percent, and it protects the lender's money in case you default. Read more

Maxime Croll

Maxime is a Director at ValuePenguin focusing on the insurance industry. Previously she was the Director of Product Marketing at CoverWallet, a commercial insurance startup, and helped launch NerdWallet's personal insurance business. Maxime has contributed insurance insights and analysis to Forbes, USA Today, The Hill, and many other publications.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.