What Is Mortgage Term Insurance?

What Is Mortgage Term Insurance?

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mortgage term insurance

When I die, the last thing I want is for my family to worry about getting kicked out of the house because they can’t make the mortgage payment! In short, mortgage term insurance is designed to keep that from happening.

I like using examples, so let’s say that Greg just bought a home and mortgaged it for 30 years. He has a wife (Susie), and 2 little ones (Jim and Stacey).

Now let’s say that Greg did not purchase mortgage life insurance. If Greg dies next year, Susie will have to keep making the payments to keep the home, for the next 29 years. If she fails, Susie and her kids will be kicked out after a swift foreclosure.

What if Greg did purchase a mortgage policy to cover his mortgage? If he dies the next year, that policy will completely pay off the mortgage (assuming he bought enough to pay off the balance in full). Now Susie and the kids can enjoy their paid off home. Best of all, that payoff of her home is a tax free benefit, and it does not have to run through probate (like all insurance).

Clearly, it’s a pretty good idea to get a term policy for your home payments!

There are several companies that issue mortgage policies. Many will let you opt into a 15 year plan, or a 30 year one. You can set the maximum payout at whatever rate you want to, but most of us will make sure that there is enough to pay off the balance. Since you can set it for a set number of years, that’s why we call it a term policy.

Another neat feature of most of these policies is that there is a decreasing benefit amount. Let’s use another example to explain that part of it.

Greg bought his home for $200,000. His banker can tell him that the balance due after 5 years is (making this number up) $180,000. The term policy can side down so that if Greg dies in 5 years, the benefit is the $195,000 that is still owed at that time. Now after 10 years let’s say that the balance is $160,000. The policy will slide down so that in 10 years it will pay the $160,000.

This decreasing benefit part of the policy may seem like a scam, but it makes a ton of sense. Since the benefit decreases to match the downward falling loan balance, the policy can be affordable. If it remained at the original $200,000 it would cost you a lot more!

If you are interested in learning more about term life insurance, there are several national companies that you can get a free online quote from. If you find a good one, they will fully explain their offer, and make sure that all of your questions are answered before you purchase the policy.

I’m a big fan of this type of insurance!

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George is an avid writer who covers a wide variety of topics for several online publications. When he's not writing, you can usually find George fishing, playing with his kids, or trying to be a better husband with his wife.

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