Mortgage Protection Life Insurance

What is mortgage protection life insurance?

Mortgage protection is mainly a reason for buying life insurance, not necessarily a separate type of life insurance. You buy life insurance with enough coverage, for the right length of time, so the people you leave behind have money to pay off the mortgage, keep making the payments, and handle other financial needs.

If you die while the policy is in force, the insurance company pays the death benefit to your beneficiary, subject to the policy terms. Your beneficiary then has money available to help with the mortgage and other expenses.

Most often, the policy is one of these:

• Term life insurance is commonly the best fit for working-age homeowners and larger mortgage balances. You can match the length of coverage to the years left on your loan.
• Whole life or final expense insurance may make more sense for older homeowners, smaller remaining balances, or anyone who wants coverage that lasts for life.

“Mortgage protection” is also used as a name for other products, and some of those aren’t life insurance at all:

Coverage type	What it is	Who it’s designed to protect	Who gets paid	When it pays
Life insurance bought for mortgage protection	A term or whole life policy you own	Your family	The beneficiary you name	When the insured dies while the policy is in force, subject to the policy terms
Lender-tied credit life / group creditor coverage	Coverage arranged through the lender, often under a master policy the lender holds	The loan	Generally the lender, toward the balance	When the insured dies while covered, up to the balance owed, subject to the terms
Private mortgage insurance (PMI)	Mortgage insurance on many conventional loans	The lender	The lender	If the borrower stops making payments
FHA mortgage insurance premium (MIP)	Mortgage insurance on FHA loans	The lender	The lender	If the borrower stops making payments
Accidental-death-only coverage	Pays only for a death caused by a covered accident	Depends on the policy	Depends on the policy	Only when death results from a covered accident

Mortgage protection is not PMI or FHA MIP

PMI and FHA MIP protect the lender if the borrower stops making payments. They’re not life insurance, and they aren’t designed to pay your family when you die.

Mortgage protection life insurance is life insurance. It’s intended to pay a death benefit when the insured dies, subject to the policy terms. Paying PMI or MIP on your loan doesn’t mean your family has any life insurance.

Is mortgage protection life insurance required?

Life insurance you buy for mortgage protection is your own policy, separate from your loan. It isn’t the mortgage insurance (PMI or FHA MIP) a loan may require. If you’re offered credit insurance with your loan, ask whether it’s required or optional, and get the answer in writing.

Who receives the money?

With a policy you own, you name the beneficiary. That’s usually your spouse, your children, another family member, or a trust. When you die, the insurance company pays the death benefit to that beneficiary, subject to the policy terms, not to your lender.

Your beneficiary receives the death benefit and generally decides how to use it. They might:

• pay off the mortgage completely;
• keep making the monthly payments and use the rest for other needs;
• sell the house and use the money for something else.

An individually owned policy generally doesn’t require the money to go to the mortgage.

A few things to get right:

• Name a backup (contingent) beneficiary in case your first beneficiary dies before you.
• Plan ahead for minor children. If you want the money to go to minor children, don’t simply name them as beneficiaries. Insurance companies won’t pay a minor directly. Talk with an attorney about leaving the money through a trust.
• Keep it current. Review your beneficiary after a marriage, divorce, death in the family, or a new home.

Lender-tied credit life works differently. The benefit generally goes to the lender to pay down the loan, and your family doesn’t decide how it’s used.

How much coverage do you need?

Start with your mortgage balance, then add whatever else your family would need to pay for if you were gone:

• funeral, burial or cremation costs;
• other debts, such as car loans, credit cards and medical bills;
• property taxes, homeowners insurance and upkeep;
• your income, if your family relies on your paycheck to make the payment;
• a cushion for emergencies.

Some people want just enough to pay off the house. Others want enough to pay off the house and replace several years of income. There’s no single right number; it’s your family’s decision.

Level coverage versus your falling balance. With level coverage, the death benefit stays the same for the whole level period. Your mortgage balance goes down as you pay it, so over time, more of the benefit may be left over after the loan is paid.

Co-borrowers and spouses. If two people are on the mortgage and both incomes help make the payment, it’s often worth covering both people.

• Some companies offer a joint policy covering two people. It usually pays only once, when the first person dies.
• Two separate policies are the other common choice, so the surviving spouse still has their own coverage.
• Ask which options are available. If one person earns more, that person can carry more coverage than the other.

How long should coverage last?

• Match the years left on your mortgage. Term policies come in different lengths. If you have 22 years left, look at a term at least that long.
• Planning to pay it off early? A shorter term can cost less, but you could be left without coverage if your plans change.
• Look past the mortgage. If you also want to protect young children or a spouse’s retirement, those needs may last longer than the loan. Some people buy two policies with different lengths so their coverage steps down as their needs do.
• Know what happens when a term ends. When a term policy’s term ends, the coverage ends unless you renew or convert it. Many term policies can be renewed without a new health review, usually at a higher premium. Many can also be converted to permanent coverage for a limited time. Ask what your policy allows and what it would cost.
• Lifetime coverage. Whole life and final expense policies don’t expire as long as you pay the premiums. That can fit older homeowners, smaller balances, or anyone who wants money left for their family no matter when they die.

Term life, whole life or final expense?

Term life insurance

• Covers you for a set number of years, and you can match that to the time left on your mortgage.
• It usually costs the least per dollar of coverage. That’s why it’s commonly the best fit for working-age homeowners with larger balances.
• With level term, the death benefit and premium stay the same for the level period.
• When the term ends, the coverage ends unless you renew or convert it.

Whole life insurance

• Lasts your whole life as long as the premiums are paid.
• It builds cash value, and it costs more per dollar of coverage than term.
• It’s often a better fit for smaller balances, older homeowners or permanent needs than for a large new mortgage.

Final expense insurance

• A smaller whole life policy aimed at seniors.
• It’s generally not enough for a large mortgage.
• For an older homeowner with a small or nearly paid-off balance, it can leave money for the house payment, the funeral and final bills.

Policy type	How long it lasts	Death benefit	Cash value	Often fits
Term life	A set number of years	Level for the level period	No	Working-age homeowners, larger balances
Whole life	Lifetime	Level	Yes	Permanent needs, smaller balances, older homeowners
Final expense	Lifetime	Level on most plans	Yes (small)	Older homeowners with small or nearly paid-off balances

Health questions. Policies differ in how many health questions they ask. I ask the health questions up front, so you can compare the policies you’re likely to qualify for before you apply.

What happens if I refinance, sell, or pay the mortgage off early?

With a policy you own, refinancing, selling or paying off the house doesn’t by itself affect your coverage. The policy belongs to you and isn’t tied to a particular loan or house. It stays in force as long as you pay the premiums.

• Refinance: your policy keeps going. If the new loan is larger or longer, it’s worth checking whether your coverage still fits.
• Sell and move: the same policy goes with you to the next home.
• Pay off the mortgage: you can keep the policy, so your family still gets the money. Ask whether your company lets you lower the coverage amount, or you can cancel the policy.
• If you cancel: a term policy generally pays nothing back. A whole life policy may have a cash surrender value, which is usually small in the early years.

Lender-tied credit life or group creditor coverage is different. It usually ends when that loan is paid off or refinanced. Read your certificate of coverage to see exactly when yours ends.

Decreasing term you own usually keeps going after a refinance. Its benefit keeps dropping on the schedule set when you bought it, whatever your actual balance is. If you refinance into a longer loan, the benefit can fall faster than what you owe.

One rule in every case: don’t cancel existing coverage until your new coverage is approved and in force.

What affects the price?

The main factors:

• Your age. The younger you are when you buy, the lower the premium.
• Your health: conditions, medications, height and weight, and recent hospital stays.
• Tobacco or nicotine use.
• Your gender.
• Your job and hobbies.
• The coverage amount.
• The policy length (for term) or lifetime coverage. Whole life and final expense cost more per dollar of coverage.
• Riders or extra features you add.
• The insurance company. Each one prices the same person differently, so comparing companies matters.

I can’t give you a fair price without a few questions about your age, health and the coverage you want. To get real numbers, use the quote form on this page or call 888-862-9456.

What to watch out for

These can be legitimate products. Each has limits that matter when the goal is mortgage protection, and another option may fit better.

Lender-tied credit life and group creditor coverage

• Some coverage sold with a loan is credit life. The lender often holds a master policy and you’re a “certificate holder.”
• The benefit generally pays the lender, up to what you owe.
• It can be convenient, but you don’t own it, your family doesn’t control the benefit, and it usually ends with that loan.
• If you’re offered coverage with your loan, ask who owns the policy and who the beneficiary is. Ask whether it’s required or optional, and get the answer in writing.

Decreasing term

• The death benefit drops over time on a set schedule, roughly following a mortgage balance.
• It’s a legitimate way to cover a falling balance, but it leaves less money each year for anything beyond the loan.
• Check whether the premium stays the same while the coverage shrinks, and compare it with level term for the same length before choosing it.

Confusing PMI or FHA MIP with mortgage protection

• PMI: private mortgage insurance may be required on a conventional loan with less than 20% down. It protects the lender if you stop making payments. On many loans, federal law lets you ask to cancel PMI once you’ve paid the balance down far enough, and it ends automatically at a set point if you’re current on your payments.
• FHA MIP: FHA loans require their own mortgage insurance premium (MIP), paid upfront and monthly. Like PMI, it protects the lender, not your family. How long you pay it depends on your loan, so check your loan documents.
• Neither one pays anything to your family when you die. Paying PMI or MIP doesn’t mean your family has life insurance.

Accidental-death-only coverage

• It pays only if your death is caused by a covered accident, not deaths from illness, such as heart disease, stroke or cancer.
• Because it doesn’t pay for deaths from illness, it isn’t a substitute for life insurance that covers death from other causes.

Waiting periods on some final expense policies

• Some final expense policies that ask few or no health questions don’t pay the full benefit if death occurs during an initial waiting period.
• Before you apply, ask whether a policy has a waiting period, how long it lasts, and what it pays during that time.
• Don’t accept a waiting period without first checking whether you qualify for a policy without one.

Return-of-premium term

• It refunds premiums if you outlive the term.
• Compare its premium with plain level term for the same coverage.
• Ask what, if anything, you’d get back if you cancelled early.

Indexed universal life (IUL)

• IUL is a legitimate product for some long-term planning, but it’s complicated.
• Its growth isn’t guaranteed. The illustrations you’re shown include projections that aren’t guaranteed, and costs inside the policy can rise.
• A policy that isn’t funded enough can lapse.
• For mortgage protection, a simpler policy with guaranteed premiums and a guaranteed death benefit is usually the better fit.

Mailers and calls about your mortgage

After you buy or refinance a home, you may get letters and calls about mortgage protection. Many of them work like this:

• Public records. They can use information from public property records, which makes them look personal or as if they came from your lender.
• Lead generation. Many are lead-generation mailers. When you return the card, your information typically goes to one or more insurance agents who will call you.
• Official-sounding wording, like “mortgage benefit,” “new homeowner program” or “final notice,” often comes with deadlines.

Words that should make you slow down:

• “State benefit” or government program. A mailer offering private life insurance isn’t a government benefit, even if it uses official-looking wording.
• “State-regulated.” All legitimate insurance is regulated by the states, so this phrase alone proves nothing. The red flag is a letter that makes a sales offer look like a government benefit.
• The VA. A private company’s letter that mentions VA home loans doesn’t mean it comes from the VA. The VA does have one mortgage life insurance program, Veterans’ Mortgage Life Insurance (VMLI). It’s for certain service members and veterans with severe service-connected disabilities who received a VA Specially Adapted Housing grant, and it pays the mortgage lender directly. It isn’t sold through mailers from private companies.
• Pressure. You should be able to get a written quote that names the insurance company, and take time to review it. Be wary of “this rate expires tonight” or “I can’t send anything until you commit.”

If you’ve received one of these mailers, you can call me at 888-862-9456. I can help you figure out what it is and whether what’s being offered fits your situation.

How to compare companies and policies

1. Know the insurance company’s name. Every quote should name the company that will issue the policy, not just a marketing name.

2. Understand financial-strength ratings. AM Best’s Financial Strength Rating is its independent opinion of an insurance company’s financial strength and its ability to meet its ongoing obligations to policyholders. It isn’t a rating of claims service, and it isn’t a recommendation to buy a policy. The top of AM Best’s scale:

AM Best rating	Description
A++, A+	Superior
A, A-	Excellent
B++, B+	Good
B, B-	Fair

3. Look at complaint history. Your state insurance department can tell you about an insurance company’s complaint history, and some states publish a complaint index. An index of 1.00 means the company’s share of complaints matches its share of the business; 2.00 means twice its share, and 0.50 means half.

4. Check the license. Your state insurance department can confirm whether an agent and an insurance company are licensed in your state.

5. Compare policies apples to apples. Use the same coverage amount, the same length and the same type of coverage, and ask:

• Is the premium guaranteed to stay level, and for how long?
• Does the death benefit stay level?
• Is there a waiting period before full coverage starts?
• Can the policy be renewed or converted when the term ends?
• What riders are available, and what do they cost?
• What are the contestability and suicide-exclusion periods?

How the Final Expense Guy can help

I’m an independent life insurance agent, so I can quote more than one insurance company instead of selling you one company’s policy. Here’s what I do:

• help you work out how much coverage you need and how long it should last;
• ask the health questions up front, so you can compare the policies you’re likely to qualify for before you apply;
• compare companies side by side and give you a written quote that names the insurance company;
• look over a mortgage protection mailer you received, or a policy you already have;
• work with seniors and people in less-than-ideal health.

To get started, use the quote form on this page or call me at 888-862-9456.

Frequently asked questions

Is mortgage protection insurance the same as mortgage insurance?

No. Mortgage insurance, meaning PMI on conventional loans or MIP on FHA loans, protects the lender if the borrower stops making payments. Mortgage protection life insurance is life insurance. It’s intended to pay a death benefit when the insured dies, subject to the policy terms.

Is mortgage protection life insurance required to get a mortgage?

Life insurance you buy for mortgage protection is your own policy, separate from your loan. It isn’t the mortgage insurance a loan may require. If you’re offered credit insurance with your loan, ask whether it’s required or optional, and get the answer in writing.

Does the money go to my lender?

Not with a policy you own. The insurance company pays the beneficiary you name, subject to the policy terms. Lender-tied credit life is different; it generally pays the lender.

Does my family have to use the money to pay off the house?

Generally, no. With an individually owned policy, your beneficiary receives the death benefit and generally decides how to use it. They might pay off the mortgage, keep making payments and use the rest for other needs, or sell the house.

What happens to my policy if I refinance or sell?

A policy you own keeps going as long as you pay the premiums. Lender-tied credit life usually ends when that loan is refinanced or paid off. Don’t cancel existing coverage until your new coverage is approved and in force.

Can I get mortgage protection if I’m older or have health problems?

Often, yes. Your options depend on your age, your health and how much coverage you need. Whole life and final expense policies can make sense for older homeowners and smaller balances. Some final expense policies have a waiting period, so ask before you apply.

How much does mortgage protection life insurance cost?

It depends on your age, health, tobacco use, gender, coverage amount, policy length and the insurance company. To get real numbers for your situation, use the quote form on this page or call 888-862-9456.

Is the death benefit taxed?

Life insurance paid to a beneficiary because of the insured person’s death generally isn’t taxable income for federal income tax purposes. There are exceptions, and interest paid on the money can be taxable, so check with a tax professional.

Should my family use the money to pay off the mortgage?

That’s their choice, and having the choice is the point. Paying off the house removes a monthly bill. Keeping the money can make more sense if the loan has a low rate or the family needs cash for other things.

We’re both on the mortgage. Do we both need coverage?

If both incomes help make the payment, it’s often worth covering both people. Some companies offer a joint policy that usually pays only once, at the first death. Two separate policies are the other common choice, so the surviving spouse still has their own coverage.