Should I buy mortgage protection insurance?
The difference between mortgage protection and a plain term policy, and why the cheaper option usually covers more.
After you close on a house, the letters start arriving. They use your lender's name and the exact loan amount, and they offer mortgage protection insurance. The product is real. It is also usually the more expensive way to solve the problem.
What mortgage protection is
It is life insurance, typically with a death benefit designed to pay off the loan. Some versions are decreasing term, where the benefit shrinks as the loan balance drops. Some pay the lender directly rather than your family.
What a plain term policy does instead
A level term policy for the same amount pays your beneficiary in cash. If the mortgage balance has dropped to 90,000 dollars and the policy is 200,000, your family receives the full 200,000 and decides what to do with it. They can pay the house off and keep the rest for childcare, tuition or the income you were providing.
Level term is usually priced similarly or better for a healthy applicant, and it covers more than one obligation. That is the whole argument.
How to size it
- Take the mortgage balance
- Add other debts and final expenses
- Add the years of income your household needs
- Subtract existing coverage
That total is the policy. The mortgage is one line in it, not the whole calculation. Our coverage worksheet walks through it.
When mortgage protection makes sense
Two cases. If you cannot qualify medically for a fully underwritten policy, some mortgage protection products use simplified underwriting and will issue when others decline. And if the structure itself, with the benefit tied to the loan, is what finally gets you to buy coverage at all, coverage you own beats coverage you kept meaning to buy.
Read before you sign
- Is the benefit level or decreasing?
- Who is the beneficiary, your family or the lender?
- Is the premium level for the whole term?
- Is it convertible?
Compare both before you decide
Bring the letter you received. We will quote the same coverage as level term and you can see the two side by side. Call (956) 687-3334. Se habla español.
Common follow-up questions
Is mortgage protection required by my lender?
No. Lenders require homeowners insurance and often flood insurance in parts of South Texas. Life insurance on the borrower is optional and is your choice.
What about the coverage offered through my mortgage servicer?
Same analysis. Compare it against a level term policy for the same amount, and check whether the benefit decreases.
Does the policy pay off the house automatically?
Only if it is written to pay the lender. A standard term policy pays your beneficiary, who then decides. Most families prefer that control.
Want this looked at properly?
We are an independent agency in McAllen serving Hidalgo, Cameron and Starr counties. No cost to talk it through.
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