Mortgage Protection Term Life Insurance

The point is not the loan. The point is the house.

When people say mortgage protection they usually mean one of two very different things, and the difference is worth being clear about before anything else.

The first is an ordinary life insurance policy, sized to your loan balance and set to a term that roughly matches the years remaining, with your family as the beneficiary. The second is coverage arranged so the lender is paid directly. The first leaves your family with money and a choice. The second leaves them with a paid-off house and nothing else.

This page is about the first one. It is what almost everyone should want, and it is usually just a level term policy pointed at a mortgage.

How it is normally structured.

You take your remaining balance, add whatever else the household would need if your income vanished, and buy a term policy for that amount. You set the term to the years left on the loan, rounded up to a length the carrier sells.

If you die during the term, the benefit goes to your named beneficiary. They can pay the mortgage off. They can keep making the monthly payment and use the rest to live on. They can sell the house and move closer to family. The money is theirs and so is the decision, which is the entire argument for this structure over the other one.

Decisions worth thinking about carefully.

Sizing it to the loan balance alone is the most common mistake. A family that owns a house free and clear but has no income has traded one crisis for another. The mortgage is where the number starts, not where it ends:

• The loan balance, as it will be a few years from now rather than today.
• Whatever income the household would lose, for however many years it would take to recover.
• Childcare, if a surviving parent would need to change how they work.
• Whether both partners need coverage, which they usually do.

What happens if you sell, refinance, or move.

Nothing, as far as the policy is concerned. A life insurance policy insures you, not the property. It stays in force as long as premiums are paid, regardless of what happens to the loan or the address.

That independence is another reason to prefer an ordinary term policy over anything sold by a lender at closing. Refinancing a mortgage is common. Refinancing a life insurance policy at forty-six, after a diagnosis, is not.

A word about the letters you get after closing.

A month or two after you buy a house, official-looking mail starts arriving about mortgage protection. Some of it is legitimate. A good deal of it is designed to look like it came from your lender when it did not.

You do not have to buy anything from anyone who mails you. Whatever it costs, the same coverage is available from a licensed agent who will show you what it is and what else it could be, and who will tell you when a plain term policy at a slightly different number does the job better.