How Does Mortgage Life Insurance Work?

What is mortgage life insurance?

Mortgage Life Insurance, as the name suggests, is a policy deemed to clear off the balance of your mortgage, when you expire. Our home is one of the major assets of our life.

How Does Mortgage Life Insurance Work?
How Does Mortgage Life Insurance Work?

But when one of the earning members of your family passes away, the balance pay-out of the mortgage goes to the mortgage lender, and your family is relieved of the burden of dealing with the same. This ensures that the family doesn’t lose their abode in case such a mishap occurs, and the family is not left estranged!

How does Mortgage Life Insurance function?

At the commencement of the insurance, the value of the coverage must be equal to the outstanding payment of the mortgage.

The termination date of the policy should same as the scheduled date of the final payment of the outstanding mortgage amount. The insurance company hence calculates the rate at which the coverage must annually depreciate in order to equalize with the outstanding mortgage repayment.

If the client has failed to repay the amount, the company would still adhere to their prior schedule and not adjust with the outstanding debt amount. This policy also works in case the client is diagnosed with an acute disease.

The positive aspect of the Mortgage Life Insurance Policy

This policy comes with some major benefits if you sign up for one:

Reduced hassle of mortgaged house: In case of any mishap such as death of the earning member, the insurance takes up the burden of repaying your leftover mortgage amount. The insurance gets activated in such cases, and your family does not need to worry about the huge burden of the mortgage and have the house to themselves.

Death is not a necessity for this insurance: Unlike other senior life insurance policies, most of the mortgage insurance functions in case the client is severely sick or is diagnosed with some acute disease.

Family security: Just as mentioned before, the family can continue staying in the house as the senior life insurance company takes up the responsibility to repay the remaining amount. If the mortgage is a major part of your finance it is wise to take up this policy!

Negative aspects of the policy

The insurance benefit decreases: Although the premiums are fixed, the pay-out is fixed to the principle of the mortgage. Hence, the policy value depreciates as the mortgage is repaid. This provision is unlike other life insurance.

The lenders are more benefitted than the borrowers: The family will not be able to see any finances from the policy. The repayment of the outstanding amount is the only benefit received by the family. The beneficiary is the lender, and, on your death, bank receives the pay-out of the insurance, which is used to repay the mortgage.

It is much more expensive: Initially the coverage received by the client is equal to the premiums paid by him. However, as time passes by, the coverage decreases considerably. Hence, it can turn out to be much costlier than other insurances!

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