What is the difference between mortgage life insurance vs. term life insurance? If you are looking into purchasing a home, it won’t be long before you begin to receive mortgage life insurance offers through the mail. Mortgage life insurance is sold by insurance companies and mortgage lenders. It pays off your home loan after you pass away with a balance left. Mortgage life insurance sounds like a good idea; your family will not need to pay your mortgage after you pass away.
Term life insurance is a type of insurance that allows you to select how long you want your policy to last and who you want your beneficiaries to be. Unlike mortgage life insurance which pays death benefits against your mortgage loan, term life insurance pays a death benefit to your dependents. While term life insurance payouts can be used to pay off mortgage debts. Mortgage life insurance and term life insurance policies are not the same.
Is Mortgage Life Insurance vs. Term Life Insurance the same?
No, mortgage life insurance and term life insurance are not the same. They are both forms of life insurance, and they both pay a death benefit after the death of the policy, but they do not work the same way.
Mortgage life insurance has one goal, and that is to pay off the mortgage balance left by the policyholder. While term life insurance pays a death benefit to the policyholder’s beneficiaries. The entire benefit is paid out in lump sum amounts to the beneficiaries, while the mortgage is paid to the mortgage lender.
What is Mortgage Life Insurance?
Mortgage life insurance pays off your mortgage loan balance if you pass away before the full payment is made. Some life insurance policies pay off your mortgage in cases of death, unemployment, or disability. This policy remains in effect throughout the life of your mortgage loan, irrespective of how long it takes. However, this life insurance is often sold as an option after purchasing your home on a loan.
Mortgage Life Insurance Coverage
This policy requires you to pay a monthly premium to keep your coverage active. After you pass away during the policy term, it will pay a death benefit directly to your mortgage lender, covering your loan balance amount monthly until it is paid fully. Unlike term life insurance that pays out to your beneficiaries, your beneficiary for this insurance is your mortgage lender. The only benefit your dependents get from this insurance is that the loan balance would be paid in full.
What is Term Life Insurance?
Term life insurance policies are policies that last only for a certain period, usually 10 to 30 years. Policyholders are allowed to select how long their coverage would last. If the policyholder dies before the end of the policy term, the policy will pay a death to the beneficiaries. This payout can be used to cover several expenses, such as final expenses, college fees, and even mortgage loans. However, as long as you are still alive, this policy will not pay any death benefit.
Term Life Insurance Coverage
Term life insurance has a more complex application than a mortgage life insurance policy. Most people often purchase a fixed amount of term life insurance policy to shield their dependents against several expenses. These expenses include large debts, health care, financial duties, child care, and mortgages. As long as you keep up with your premium payments, the overall amount of your life insurance will be paid as a death benefit to your beneficiaries after you pass away.
Mortgage Life Insurance vs. Term Life Insurance: What is the Difference?
As previously stated, these types of life insurance are different from each other in several ways. Both mortgage life insurance and term life insurance are optional insurance policies that provide some financial protection to your dependents after you pass away.
The main difference between them is that mortgage life insurance pays off the balance left on a mortgage loan, while life insurance pays a death benefit that can be used for several expenses for your dependents.
Can Term Life Insurance Be Used to Pay Mortgage?
Yes, term life insurance can be used to pay off mortgage loans. Paying off loans is one of the primary aims of term life insurance. As previously stated, term life insurance death benefits can be used to cover a variety of expenses, including mortgages, making it a better option. However, based on the policyholder’s age, gender, job type, and other factors, it may be more costly than mortgage insurance.