Mortgage protection insurance is a form of life insurance that’s directly tied to your home mortgage. It will pay off the balance of your home mortgage if you die.
It’s a way to protect your spouse or loved ones so they can keep the house and have a fully-paid home mortgage. That’s a pretty great prospect, but since this insurance is only for your mortgage, your family isn’t the beneficiary. The money actually goes to the lender and not your family. Your family still benefits from a paid-off home, but unlike a regular life insurance policy, they don’t get to choose what to do with the money.
Your family may have more other, more pressing financial concerns if you die. They may need money to deal with expenses other than the home mortgage. With a term or whole life insurance policy, your family or designated beneficiaries get the money when you die and can do with it as they see fit.
Regular life insurance or mortgage protection insurance?
Most people will benefit more from a term life insurance policy that can cover the mortgage cost while still providing your family with financial options. Term life will pay money to your family and not the lender. They can decide whether to pay off the mortgage or use the funds elsewhere.
What if I can’t get life insurance?
A mortgage protection policy does benefit from being somewhat easier to get than life insurance because there is usually no medical exam required. If you have medical conditions that prevent you from qualifying for life insurance, mortgage protection can still provide financial security for your family.
While mortgage protection insurance is certainly a viable way to provide a death benefit to those you love, a life insurance policy simply provides more flexibility to those receiving the benefit. You can also get both types of insurance so that the mortgage protection pays off your home, and the entire life insurance benefit is available to your beneficiaries for any other expenses they need to cover.