It is one thing to close escrow on a mortgage and become a homeowner. Yes, it’s one of the biggest investments, achievements, and steps you’ll ever make in your life. But do you make sure that, in case you die before paying off your mortgage, your relatives or beneficiaries are taken care of? Undoubtedly, it’s unpleasant to consider the possibility of a mortgage borrower’s death, but it does occur. And when this happens, it leaves many people to shoulder the financial burden of the debt on their own. This guide covers all you need to know about mortgage life insurance in case of death or disability occurring to you or your spouse, the cost, and more.
Why Mortgage Insurance in Case of Death?
Basically, it’s a good idea to get mortgage insurance in case of death for your home if you have family members who depend on your income. If you don’t leave a will, your heirs may be unable to keep up with the mortgage payments. Therefore, they are forced to find a new place to live.
The home mortgage can be paid off using the benefits of a mortgage life insurance policy (mortgage insurance in case of death or disability). Thereby preventing further hardship at a time when it is needed the most.
In addition, if you’re married or have a spouse, even if one of you does not earn a living, it may be worth it to both of you to purchase a mortgage insurance in case of death policy. This would alleviate the financial burdens that would follow the death of either one of you.
A life insurance benefit may be useful in clearing the mortgage in the case of the death of a partner who’s working from home. This can then free up money to pay for things like daycare.
Normally, a joint insurance policy is the cheapest way to insure two individuals. However, bear in mind that such plans often only pay out once. This means that the surviving partner would be without insurance if there’s a claim.
However, it’s advisable not only to insure against the possibility of dying. But you should also think about including coverage for critical illness and disability in your mortgage life insurance policy. A ‘critical illness’ as described by the policy’s terms would allow the mortgage to be paid off in the event of either partner’s death.
Regardless, it’s a good idea to study the terms and conditions of the insurance policy carefully.
How Does It Work?
With a mortgage insurance policy that covers the entire balance of your loan in place, your mortgage can be paid off in full or in part in the event of death. Mortgage insurance can cover the entire loan, a portion, or a specific length of time, like five years. The higher the premiums, the greater the length and size of the reward.
Bank-affiliated lenders and independent insurance providers both sell mortgage life insurance as a specialized policy. However, in contrast to other life insurance policies, this one is unique. Mortgage life insurance only pays off a mortgage in case of the borrower’s death while the loan is still outstanding. This is unlike standard life insurance, which pays you a death benefit upon your death. Likewise, if you die with a mortgage balance, your heirs will greatly benefit from this.
On the other hand, if you don’t have a mortgage, then you won’t get any money back from the investment. Remember that home mortgage insurance in case of death is not the same as mortgage insurance. The latter is a type of private insurance that you must have in place as part of some conventional mortgage lender requirements. In contrast to mortgage insurance, which protects the lender if the borrower fails to meet their financial commitments, home mortgage life insurance protects the borrower in case of death and their loved ones. The borrower has the option of paying the premiums individually or as part of their normal monthly mortgage payment.
The Cost of Mortgage Insurance in Case of Death
Generally, insurers calculate rates depending on a variety of factors, which results in a wide range of mortgage life insurance costs.
If you have a home mortgage, the cost of mortgage life insurance in case of death will basically depend on your age, medical and mental health history, and the terms and total cost of your home loan. This cost in insurance terms is referred to as “premiums.”
With a policy with guaranteed premiums, you know exactly how much you’ll pay each month for the duration of your coverage. But if you opt for renewable rates, the insurance company has the option to raise the premiums in the future.
In addition, the potential reward may decrease over time, indicating that debt will decrease as a result of mortgage repayments.
Mortgage life insurance, with a payout that diminishes over time, is often one-third less expensive than purchasing a conventional life insurance policy that pays a fixed value.
As a general rule, the younger and healthier you are at the time you are taking any home mortgage life insurance in case of death or disability or with your spouse, the more affordable the cost will be.
Nevertheless, you can find some instances for various ages in the list below. A decreasing-term policy covering $100,000 over 20 years is the basis for these policies.
| Age Differences | Policy Cost (Monthly) |
| 18 | $3.08 |
| 25 | $3.85 |
| 30 | $3.99 |
| 40 | $5.09 |
| 50 | $10.72 |
Mortgage Insurance in Case of the Death of a Spouse
In many cases, your mortgage and your marriage vows are linked. Hence, your house could be repossessed if your spouse dies without both of you signing the loan documentation. On the other hand, you can have coverage for your mortgage, while your existence without your spouse will be less uncertain. This, however, is only if he has in place an insurance policy to cover your family’s requirements.
Policies for life mortgage insurance can be extremely diverse. Generally, most of these policies will take care of your mortgage in the event of the untimely death of your spouse. A mortgage life insurance policy obtained by your spouse ensures that, in the event of his death, the insurer will reimburse the mortgage balance. However, it is possible that you’ll need to add a rider to your mortgage life insurance policy to cover your spouse in case of his death or disability. In contrast, the underwriter will only pay out one death benefit under this scenario. So, you’ll have to pay off the mortgage and terminate the policy in the event that one of you passes away.
Term Life Insurance
Term life insurance may be the most cost-effective way to pay off your mortgage if your spouse does not have health conditions. Basically, after the death of your spouse, you will have the money for a mortgage-term life insurance policy. And you can use it to prioritize your financial commitments. Meanwhile, depending on how many years you still have on your mortgage, you can get 5-year, 10-year, 20-year, or 30-year term life insurance. Additionally, the premium costs gradually rise as your spouse gets older.
Whole Life
A policy of whole life insurance that your spouse purchases when he is still young may be an alternative to covering the repayment of your mortgage. Generally, people in their twenties and thirties should expect to pay a lot less than those in their fifties. With this option, you’ll pay more in premiums up front, but they will remain consistent as your husband ages. If you can afford the payments, consider purchasing enough insurance to cover your mortgage and a year or more of living expenses.
Mortgage Life Insurance
In the case of your spouse’s death, mortgage life insurance pays down the whole sum of your home’s mortgage. However, the policy’s sole beneficiary is your mortgage company. The initial insurance amount is equal to the sum of your mortgage’s principal and interest. The payments you make to keep the policy active are usually constant over time. But the amount of money the policy pays out is usually limited to the outstanding balance. However, as long as your insurer pays off the mortgage, you’ll have to take care of other costs like property taxes, casualty insurance, or homeowner’s association fees on your own.
However, contrary to all the above ways of getting home mortgage insurance to protect yourself and loved ones in case of the death or disability of your spouse, the most important aspect in determining your insurance cost is the sort of policy you select. You’ll basically pay more for mortgage life insurance if your spouse is older, sicker, or owes more than the amount of your mortgage. While it may be tempting to insure your mortgage with a group life insurance policy your employer provides, employees frequently lose this type of life insurance when their employment expires.
According to the US Savings and Loan Association, the disability of the major income earner in a home accounts for over half of all mortgage defaults. Hence, without a separate rider, most life insurance policies don’t cover the mortgage if your husband is disabled.
Wells Fargo Mortgage Insurance in Case of Death
Basically, Wells Fargo is no longer offering life insurance policies for employees or subscribers. Founded in 1852, Wells Fargo is one of the oldest financial firms in the United States. Regardless, there is no way to get life insurance via Wells Fargo as stated earlier. The only way this is possible is if you’re willing to go through a third-party broker, which isn’t an option for most people.
On the contrary, an extensive array of options is available to help you plan your financial future in one spot. And, in order to help you locate the best insurance policy, Wells Fargo Advisors can act as a third-party broker. This will help you locate and put in place the appropriate and average-cost mortgage insurance to protect you and your spouse in case of death or disability
Although Wells Fargo did sell this package in the past, it has since stopped selling its own life insurance products. Wells Fargo has a long history of legal issues; in 2016, the bank was embroiled in a scandal. Basically, this is over the unauthorized acquisition of life insurance policies for its customers without their knowledge. As a result, Wells Fargo stopped offering life insurance policies. These include term, whole, universal, and variable life insurance policies.
Term Life Insurance
Term life insurance is a short-term insurance policy that is popular for its low rates and low deductibles. This policy protects you for a specific period of time, usually 10 to 30 years, depending on your policy. To ensure that your loved ones get proper care in the event of your untimely death or that of your spouse, you will have the money from mortgage term life insurance to prioritize your financial commitments
Whole
This type of mortgage is like a life insurance policy that protects you for the rest of your life. In the event of your death, your beneficiaries will receive benefits comparable to those of term life insurance. You build up the cash value of your coverage over time by making regular premium payments.
Universal
With universal life insurance, you have the option of customizing your death benefit. Likewise, you can even skip your monthly premium if you so desire. The cash value of the policy grows over time, making it a long-term kind of mortgage life insurance.
What is the Difference Between Mortgage Life Insurance and Private Mortgage Insurance?
Mortgage life insurance is an optional purchase that safeguards you if you die in a situation where you are no longer able to pay off your family’s mortgage. On the other hand, when your down payment is less than 20%, lenders may mandate private mortgage insurance (PMI). This protects the lender in the event of a default.
Is it Possible to Include Critical Illness Insurance in a Mortgage Life Insurance Policy?
Yes. A critical illness policy pays out a lump payment if you are diagnosed with one of the serious conditions indicated on the policy. This could be something like a heart attack, cancer, or stroke. If you add critical illness insurance, your mortgage could receive a payoff if you become extremely ill, not only if you die.
Is it Better to Have a Joint or Single Insurance Policy?
Some insurers offer combined or single mortgage life insurance if you and your partner are both contributing to the mortgage payment. However, when the first policyholder dies, the joint policy pays out once.
What Insurance Pays Off Mortgage in Case of Death?
Mortgage protection insurance (mortgage life insurance or mortgage protection life insurance) is a type of policy that, as its name suggests, settles your mortgage in the event of your death. When you pay off your mortgage, the death benefit from an MPI coverage usually drops, but your premiums remain the same.
When is Mortgage Life Insurance a Good Idea?
If you have a health problem that prevents you from acquiring coverage altogether or makes term life insurance too expensive, then mortgage life insurance makes sense. Mortgage life insurance is recommended if your primary objective is to guarantee that your home loan is paid off in the event of your death, even if the benefits will be distributed only to your mortgage lender and not to your surviving family.
Do I Need Homeowners Insurance if I Have a Mortgage?
In most cases, your mortgage lender will mandate that you obtain homeowners insurance if you have one. This is the reason why: The lender wants you to be able to rebuild if something catastrophic happens to your house, such as a fire, tornado, or other disaster. If you don’t have enough money to rebuild the house, they don’t want you to default on the loan.
How Long Do You Have to Have Mortgage Protection Insurance?
For the length of the policy term, you will continue to pay monthly premiums if you purchase a mortgage protection insurance policy. If you stop paying your premiums, your insurance provider has the right to cancel your benefits.
Can I Cancel My Mortgage Insurance?
It is possible to cancel at any time, just like with most other types of insurance. But remember that if you cancel, you won’t receive a refund of any money you paid to your insurance company.
Final Thought
Mortgage life insurance basically exists to bridge the gap that standard life insurance fails to cover. Even if the surviving family members get a death benefit payment, life insurance does not cover mortgage payments. It’s probable that if a homeowner dies, his or her heirs will have to pay the mortgage. However, in the case of the homeowner’s death or disability, mortgage life insurance, a sort of decreasing-term life insurance policy taken out on the homeowner’s life, names the mortgage company as the beneficiary.
Since this sort of life insurance is frequently available without the need for a medical examination, it can be a way for people in poor health to get life insurance that they wouldn’t otherwise be able to get. Mortgage life insurance provides your loved ones with the security of knowing that if something were to happen to you, your house would be paid off in full, allowing them to live comfortably each month.
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