Mortgages make the dream of home ownership possible. They’re the reason you’re able to buy the home with the large backyard or the one that’s in a neighbourhood with great schools.
But having a mortgage also means that you’re in a long-term relationship with your bank – and not the kind that keeps you warm in bed at night. Instead, if you have a mortgage, you’re in a position where you owe your bank money. And depending on the size of your mortgage, you might spend years or even decades paying it all off. Sigh.
That’s why you might wonder whether you should buy mortgage life insurance. After all, although it’s unlikely that you’ll die before you pay off your mortgage, it’s not impossible. And if you do pass away earlier than expected, you won’t leave this world alone. Your income will go with you.
That means that it won’t be able to pay or contribute to your monthly mortgage payments. And it could end up leaving your family without a home.
Is buying mortgage life insurance the best way to protect your family? Or is there a better way to shield your family from mortgage debt?
Keep reading below to learn about the difference between mortgage life insurance and its best alternative: term life insurance.
What is Mortgage Life Insurance?
Mortgage life insurance is a type of insurance that protects your family against mortgage debt. You buy a policy and pay monthly premiums. And if you die, your insurer pays out a death benefit to your bank to cover the remaining balance of your mortgage.
Mortgage life insurance won’t give you more time with your family or erase the pain of your absence. It’s not a time machine, after all. But it does reduce the financial burden of your death by ensuring that your family won’t have to worry about making mortgage payments.
This is important because now that your income is no longer in the picture, your family might not be able to afford the mortgage payments on top of all of the other expenses that your income is no longer around to cover. And if your family isn’t able to pay the mortgage payments, they’d have to sell the home.
What's the Alternative? Term Life Insurance
Because mortgage life insurance can shield your family from mortgage debt, it may seem like a no-brainer to buy it. But there’s another type of insurance that can give you coverage for your mortgage and benefit your family in a number of other ways too. What are we talking about? Term life insurance.
With term life insurance, you buy a policy for the period of time that you expect to have debt and dependents that need to be protected. For most people, this tends to be 10, 20, or 30 years. Just like with other types of insurance, you pay monthly premiums to be covered. And if you die during the term of your policy, your insurer pays out a death benefit. In this case, though, the death benefit goes to your family, not the bank.