What is Mortgage Life Insurance?

Many people confuse mortgage life insurance with private mortgage insurance (PMI). Private mortgage insurance pays the mortgage lender in case of default. If you take out a mortgage with less than 20 percent down payment, the lender will require PMI to protect it from default. Although it sounds similar, mortgage insurance that insures you in case of disability or death is optional.
Within a few days of closing, you’ll probably get offers and brochures from your mortgage company or an affiliate offering different types of mortgage insurance.
Some policies will make the payments if the borrower becomes disabled; others will pay off the mortgage upon the borrower’s death. The question is, are these policies a good way to go? If you would sleep better at night knowing that if you become sick or disabled, your mortgage payment would be paid, then this type of policy may be worth pursuing. Compare quotes from several insurers, including the company that has your homeowner’s policy. Rates will vary widely depending on area, age, and amount. Another option available is the policy that pays off the mortgage if you die. Basically, this is called a decreasing term insurance. In theory, the rates should go down as you pay off the mortgage.
Many financial experts say that a standard term policy is not only cheaper but has more flexibility. For example, mortgage insurance would pay off the mortgage balance automatically if you were to die. A regular term policy would pay the survivors, but if they didn’t want to pay off the mortgage, they wouldn’t have to.
Here again, the best way is to check with several companies and compare rates. The company that has your homeowner’s policy may have this program and give you a cost break.