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Is Mortgage Life Insurance worth it?

Mortgage Life Insurance is generally expensive for the benefit received. Term life insurance is usually better.

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Mortgage Life Insurance is presented to home buyers (both for residences and rentals) as protection for the buyer's family and heirs. The problem with that statement is three-fold.

First, mortgage life insurance has a declining benefit. Since it only pays off the loan and the loan balance gets smaller every year the coverage provided also becomes smaller each year. This is one of the main arguments against a true mortgage life insurance policy vs. more traditional types of life insurance.

Second, mortgage life insurance only pays off the mortgage. It does not provide additional cash benefit to heirs. In many cases, on the borrower's death other bills may be much more pressing and the money better used to pay those bills rather than the mortgage. A mortgage, being generally 15 or 30 years in length, usually has much more manageable payments than a similar sized obligation of shorter duration (e.g. auto loans, business loans, credit cards).

Lastly, a term life insurance with a large enough value to pay off the mortgage (or other loans) will likely be cheaper than a mortgage life insurance policy. Mortgage life insurance approval is a simpler process than term life insurance for a reason. The higher premiums of mortgage life cover the insurance company for the extra risk of not looking as closely at the insured as they would with another policy.

Can mortgage life insurance be a good deal? It can, related to the paragraph above, if the insured has reason to believe they might get turned down or pay a higher premium for a term life policy.

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