Mortgage Protection Life Insurance Explained

Mortgage Protection Life Insurance Explained

by Leslie Freeland, November 23, 2016

Mortgage Protection Life Insurance: What is it?

Simply put, mortgage protection life insurance is a form of life insurance designed to cover the balance you owe on your mortgage if you pass away during the term of your home loan.

If you’re like most homeowners, your home is the biggest purchase you’ll make in your lifetime.

And if you’re among the many American homeowners who have a mortgage on their home, chances are good your monthly payment is about $1000 or more, based on the national average.

If your family counts on your income to help cover all, or part, of the mortgage payments on your home, your loved ones might struggle to keep the family home if you pass away. They could have trouble making mortgage payments, especially if they are dealing with medical bills and funeral expenses as well.

And in some cases, lenders might prevent someone taking over and modifying a home loan, so your survivors may not be able to simply continue to make your mortgage payments after you die. According to Diane Thompson of the National Consumer Law Center, “Surviving spouses who want to stay in their home can run into difficulties if they need a loan modification to afford the payments.” Lisa Provost of the New York Times points out that “lenders are often unwilling to allow spouses to assume the mortgage unless they are current on their payments.”

Ask yourself

If you died today, who would make your monthly mortgage payments? That’s where mortgage protection life insurance comes in.

As a homeowner, it is vitally important that you ask yourself this question. Too often, families do not think about what they would do if they had a devastating death in the family compounded by a looming mortgage payment. Would your family have to move? Would your kids have to change schools? Would your home go into foreclosure?

Taking out mortgage protection life insurance is one way that you can protect your family against financial hardships if you die before your home is paid off.

For example, if you have a 20-year mortgage, you can buy a 20-year mortgage protection life insurance policy that covers the current balance on your mortgage. This way, if you should die, your family will be able to pay off the mortgage and continue living in your family home. The nice thing about mortgage protection life insurance is they also have the choice of paying off a portion of the mortgage or even just keep making the payments. They are not locked into paying the entire balance of the home loan.

The worry is real

Did you know that with many lenders you only have 3 months to get a payment to your mortgage company before you are considered default on your home loan? This means you only have 3 months to make a payment or sell your house. Miss 3 payments and the bank begins the foreclosure process.

If your family can’t afford the mortgage payments, one way out of this situation is to immediately list your home for sale. However, several years ago, the housing market was much higher than it is now. Did you purchase a home during that time? Is your house upside down now – worth less than you owe on it? If so, the chance of selling your home in 3 months is very unlikely.

Concerned? We are not surprised. Suffering a death in the family is traumatic enough without your family falling into financial hardship as well.

One Solution: Mortgage Protection Life Insurance

Is Mortgage Protection Life Insurance Right for You?

The decision to buy any insurance policy should be based on your own personal financial situation. You should meet with a licensed insurance agent to discuss your options. Here are top features of a mortgage protection life insurance policy.

Top features of a mortgage protection life insurance policy:

  • Protection against foreclosure

As mentioned before,  foreclosure can begin in as little as 90 days. If you, or your beneficiaries, are unable to make payments on your mortgage for 90 days, your lender can take action to foreclose on your home.

If your family has medical bills and final expenses to deal with after you pass, mortgage protection life insurance can provide them with the money they need to both avoid foreclosure and pay off your mortgage, as well as cover extra costs for a funeral.

  • Affordable 

Because mortgage protection life insurance is usually a form of term life insurance, it’s much more affordable than other types of life insurance. It is important to note that, just like with other types of life insurance policies, your monthly payments are based on your age and health.

Some carriers offer coverage as low as $17.25 per month*. This is only 5 cups of coffee from Starbucks or less than the cost of one large pizza for your family. * Based on a 10-year policy at the preferred plus, non-tobacco rate (depending on your individual needs and circumstances, this price may vary)

  • Easy to qualify for

Qualifying for mortgage protection life insurance is usually a simple process that doesn’t involve having a medical examination. In many cases, people who have been unable to purchase other types of life insurance are able to buy it.

  • Death benefit never goes down

The payout amount for mortgage protection life insurance stays the same throughout the term of the policy. This means the amount of money your beneficiaries would receive is fixed. It doesn’t matter how much you owe on your home loan. They will still receive the same, full amount.

  • Monthly payments will never increase

With a mortgage protection life insurance policy, you won’t need to worry about your monthly payments going up. Your insurance payments will be the same throughout the entire term of your policy.

  • Illness and disability add-ons are available

Just like with most types of life insurance policies, you may have the option of purchasing  additional coverage against critical illness or permanent disability with your mortgage protection life insurance policy. You can make sure your mortgage will be paid, even if you’re unable to work, by adding this optional coverage.

  • Tax-free benefits are paid directly to the beneficiary

The benefits provided from a mortgage protection life insurance policy are non-taxable. Payment goes directly to the beneficiary named in the policy, not the bank or loan company, and the benefits are usually paid out quickly.

If you buy traditional mortgage protection from your home loan lender, the lender is the beneficiary (receives the money). You would pay for the insurance, but your lender would own it.

  • Convertible

Most mortgage protection life insurance policies can be converted to permanent life insurance down the road that can be used to supplement your retirement income, pay for medical bills, or leave a tax-free death benefit to your survivors. This is a way for you to keep your mortgage protection life insurance long after your mortgage has been paid off.

  • Portable

If you move after you purchase mortgage protection life insurance, your insurance policy moves with you. You will not need to re-apply, even if your health or financial situation changes. We d recommend you get a policy review if you do this though so you can make sure your new policy needs are being met.

To Learn More

If you need more information about mortgage protection life insurance, contact us for more information and a custom quote. One benefit of working with Asurea is our access to so many different insurance companies. We work with over 40 different insurance companies and are able to evaluate your specific needs based on your own goals. We can then match you to several different insurance policies that would be best for you. When you meet with your insurance agent, you will discuss your options and see what you like best.

Don’t forget your check-ups – Getting your policy reviewed

If you already have mortgage protection insurance, then you should have an Asurea Policy Review on your current policy at least once every few years to make sure you still have the right amount of coverage. If you have taken out a loan for home repairs or upgrades, you may need to get more coverage. There are many other reasons your policy may need a review, so make sure to contact us every few years to go over all of your options.

Also, if you purchased your policy with someone other than Asurea, we can take a look at your current policy and make sure you have the right one for your needs.

Editor’s Note: This post was originally published in June 2015 and has been updated for freshness, accuracy, and comprehensiveness.




Asurea offers Life Insurance, Mortgage Protection Life Insurance, Medicare Supplement Insurance, Final Expense Insurance, Disability Insurance, Long-term Care Insurance, Retirement Planning products and more. For additional information, click on the ‘Learn more’ button below. Want to have articles just like this delivered to your inbox? Just enter your email address in the box below and click ‘Subscribe.’

Mortgage Protection Life Insurance death benefit may be used for any purpose. This information is provided for general consumer educational purposes and is not intended to provide legal, tax or investment advice. Dollar amounts are for illustrative purposes, not actual.


Leslie Freeland

Leslie Freeland

Find her at LinkedIn
Leslie joined Asurea as the Marketing Communications Coordinator in February 2015. Since then, she has been working closely with insurance professionals to educate the public on the importance of life insurance and protect the public from common scams with informational articles.
Leslie Freeland