How Much Does Mortgage Life Insurance Protection Cost?
A 50 year old man in good health can expect to pay around $30 per month for a mortgage life insurance policy in the amount of $300K, for a term of 10 years. More example costs here.
Mortgage Life Insurance is a life insurance type that pays off your home loan in case of your death. It is basically a term life insurance policy with the policy term equaling the loan term - typically, twenty to thirty years.
For example, if you obtain a 30 year home mortgage, you would get a 30 year term life insurance policy. This way the mortgage would be paid off in case of your death, and your family would not be left in a financial predicament.
Choose a life insurance policy amount (death benefit):
What is mortgage life insurance?
Mortgage life insurance is a specialized type of coverage meant to pay off any remaining home loan debt in the event of the policyholder's death. With regular life insurance, the beneficiary receives the payout to use at their discretion. But mortgage life insurance names the lender as beneficiary so funds go directly towards eliminating the mortgage balance.
Also called mortgage protection insurance (MPI), it should not be confused with private mortgage insurance (PMI). PMI is required by lenders when a homebuyer puts down less than 20%, to protect against default. Mortgage life insurance instead provides a death benefit to the lender to retire the mortgage debt and support the family.
By designating the mortgage company as beneficiary on a life insurance policy, the borrower can rest assured their surviving loved ones will inherit the home free and clear without the burden of monthly payments. Mortgage life insurance brings peace of mind that mortgage obligations will be handled after death.
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Getting mortgage protection coverage is always a wise choice when you first buy a home - especially if you have a family.
Easy To Get Affordable Rates
Mortgage protection life insurance policies are usually very affordable and cheap, because they are just like a term policy. For example, if you are a 40 year old male smoker in California with regular health, the monthly cost of buying a $500,000, 20 year mortgage term life insurance policy would be around $160 per month. But if you are a non-smoker, it would be around $65 per month to buy a policy.
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Listed below are the Preferred Plus rate classes (the best rates available) for 10-year level term life insurance policies for males of different ages and coverage amounts.
| Age | $100,000 | $200,000 | $300,000 | $400,000 |
|---|---|---|---|---|
| 30 year old man | $8.35 | $10.57 | $12.77 | $14.91 |
| 40 year old male | $10.11 | $14.07 | $17.30 | $21.26 |
| 50 year old man | $15.39 | $24.61 | $30.29 | $38.61 |
| 60 year old male | $34.23 | $62.28 | $77.50 | $101.51 |
| 70 year old man | $82.34 | $158.66 | $234.92 | $311.14 |
| 75 year old male | $138.99 | $271.30 | $404.61 | $537.93 |
09/03/2023 - These monthly rates are just estimates. Your costs will most likely be different.
What is the duration of a mortgage protection plan?
Mortgage protection insurance policies come in term lengths ranging from 10 to 30 years. The initial term sets the period where premiums remain fixed, typically aligned with the mortgage payoff timeframe. Once the term ends, renewals are available annually but rates increase each year as the insured ages.
Policies can continue being renewed until age 95 in most cases, providing lifelong mortgage protection. The initial locked-in premium term chosen should match the remaining length of the mortgage.
This ensures affordable rates for the duration of the loan so the policy consistently covers the balance owed. Mortgage protection spans as long as necessary to pay off the home loan debt if the insured passes away.
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Why Mortgage Life Insurance May Be a Bad Idea
While having your mortgage paid off in the event of death may seem appealing, mortgage life insurance has some potential disadvantages to consider.
Unlike regular life insurance that gives beneficiaries flexibility with the payout, mortgage life insurance must go directly to retire the home loan. This leaves less funds available for other pressing needs like medical bills, funeral costs, or general living expenses.
Additionally, if mortgage payments are low and manageable for survivors, keeping the loan to use funds for other purposes like college tuition may make more financial sense. The decreasing coverage of mortgage life insurance also means premiums stay steady while the death benefit slowly declines over time.
Before opting for mortgage protection, think carefully about whether beneficiaries may need more lump-sum options beyond just repaying the loan. While convenient, it can limit resources for other priorities. Thoroughly discuss alternatives with an insurance advisor to make the best choice for your situation.
Mortgage Protection Insurance Vs. Mortgage Insurance
Mortgage insurance and mortgage protection insurance sound similar but serve different purposes. Mortgage insurance, also called private mortgage insurance or PMI, is required by lenders to cover their losses if the borrower defaults. This protects the lender.
Mortgage protection insurance, on the other hand, is a type of life insurance that pays off the remaining mortgage balance if the borrower dies. This voluntary coverage protects the borrower's family so they inherit the home free and clear.
While lenders mandate mortgage insurance for high-risk loans, mortgage protection is optional peace of mind. Borrowers choose mortgage protection insurance to ensure their loved ones don't take on mortgage debt after their death. This provides financial security to the family, unlike mortgage insurance which covers the lender's risk. The key difference is who benefits - mortgage protection gives protection to borrowers and beneficiaries.
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More Pricing Examples:
- If you are a 45 years old female non-smoker in Texas with regular health, the monthly cost of buying a $400,000, 30 year term life insurance policy would cost you an average of $70 per month. But if you are a smoker, it would be around $157 per month to buy a policy.
- For a 50 year old male smoker in New York with regular health, the yearly premium cost of buying a $300,000, 20 year term life insurance policy to cover his mortgage would be around $2,000 ($167 per month).
- A 30 year old man, in Tampa Florida, non-user of tobacco products, can get a term life policy to cover the family $200,000 mortgage for a period of thirty years for an average cost of $25 to $30 per month. At these rates, it is a no brainer to get coverage protection on the mortgage.