Mortgage Life Insurance vs. Term Life Insurance
In all probability, taking out a home or property mortgage means that the lender will be insisting that you cover your ability to make mortgage payments with a life insurance policy. This is simply because the insurance company does not want to be in the position of selling off your property to recoup the loan, in case you die before completing the payments. If you are covered with life insurance, the financial company will receive their full balance in the event of your death, the mortgage is cleared and the property becomes part of your estate.
Thus, mortgage life insurance is taken out not only to ensure full repayment of the loan, but also to make sure that the basic intent and expected benefit to the entire family on account of the purchase of the property is not yanked away due to your demise. A mortgage life insurance will ensure that your family is able to maintain the same lifestyle and does not suffer any hardship.
While mortgage life insurance is mostly similar to term life, there are some aspects which are specific to mortgage policies. The main difference comes in the actual benefit amount. With a term life policy, the benefit your family receives is pre-specified, and your family is assured of that amount, regardless of how many installments you have paid, or not yet paid. With a mortgage lie policy, the benefit is equal to the balance left on your mortgage, which gradually decreases as you continue making payments. Thus, while you may be paying the same premiums as you would for a term life, the benefits received may be less than half or even lower, depending on the amount you have already cleared on your mortgage.
This suggests that the simple way to get maximum benefits would be to take out a conventional term life insurance policy and name the mortgage company as one of the beneficiaries, while naming your family as beneficiaries for receiving any balance left out after the mortgage company takes their share to clear the mortgage and release the property to your family. Thus, in the event of your death, your family gets the full value of the insurance, with part of the value being in the property and the balance in cash compensation from the insurance company.
It is not necessarily so simple in a lot of cases, and you are advised to consult your financial planner, a trusted mortgage specialist and your insurance agent before you arrive at any conclusion.