If something happens to you, the last thing your family should face is losing their home. The right life insurance ensures the mortgage is paid off — and your family stays put.
Your death benefit should cover your remaining mortgage balance — or more, to also cover ongoing living costs for your family.
A 30-year mortgage calls for a 30-year term policy. A 15-year mortgage could use a 15 or 20-year term. The coverage window should match the mortgage payoff timeline.
Name a person (not the lender) as beneficiary. Your family receives the lump-sum tax-free and can choose to pay off the mortgage or use the funds another way.
Your term life premium is set at application and never changes. Apply while healthy to lock in the lowest possible rate for the full term.
Mortgage protection life insurance is typically a term life insurance policy designed to provide a death benefit large enough to pay off the remaining mortgage balance. It ensures your family keeps the home — not the bank.
Regular term life insurance is almost always the better choice. It pays a fixed benefit to your beneficiary (not the lender), the benefit amount doesn't decrease as your mortgage does, and premiums are typically lower than specialized mortgage protection products. Name a person as beneficiary and they can pay the mortgage — or not — based on what's best at the time.
A common starting point is to cover the full mortgage balance plus 2–3 years of living expenses. For a $350,000 mortgage, $500,000–$600,000 in coverage provides both mortgage payoff and income cushion.
Lender-offered mortgage insurance (also called credit life insurance) typically pays the lender directly, has a decreasing benefit as your balance reduces, and is usually more expensive than individual term life. An individual term policy gives your family the cash — not the bank — with more flexibility and usually lower premiums.
Life insurance doesn't cover disability. Pair your term life policy with disability insurance to protect your mortgage payments if you become unable to work. Disability insurance can replace up to 60% of your income — enough to cover the mortgage and living expenses.
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