Mortgage Life Insurance Tips
The Basics of Mortgage Insurance
- Understanding the Death Benefit and Premiums
- Underwriting Choices
- Understanding the Need for Mortgage Insurance
- Incontestability Clause
- Mortgage Insurance Exclusions and Limitations
Understanding the Death Benefit and Premiums
Ideally, the principal balance of your mortgage will decrease over the years as you continue to make your monthly mortgage payments. Mortgage Insurance is designed to have a decreasing death benefit to mirror the balance of your mortgage throughout the upcoming years. The premiums for Mortgage Insurance will decrease as you lower your coverage amount as your mortgage decreases over time, which makes your future premiums much easier to budget. Mortgage Insurance is term life insurance that is purchased for the sole purpose of paying off your mortgage should your death occur before your mortgage is paid off. When your Mortgage Insurance policy is issued, the coverage amount of the Mortgage Insurance will be roughly the same as the balance on your mortgage (or your total debts), and your family members (spouse, children, etc.) will be named as the beneficiary(ies) of the policy. Mortgage Insurance is similar to traditional term life insurance, in that it's structured to last the entire duration of your mortgage. After your mortgage is paid off, Mortgage Insurance can be converted into traditional whole or universal life insurance if needed.
Underwriting Choices
When you purchase Mortgage Insurance, there are a few different underwriting options for you to choose from. If you purchase a fully-underwritten Mortgage Insurance policy, then your health must be assessed before the policy is issued. This is done in order to determine the amount of risk you pose to the Mortgage Insurance company. Because the rates of a fully-underwritten Mortgage Insurance policy are considerably less expensive than a non-medically underwritten Mortgage Insurance policy, the Mortgage Insurance company must be certain that your health is within their underwriting guidelines and requirements. Your application for Mortgage Insurance will contain questions regarding your current health as well as your past health history. Once your application and physical examination have been completed, the Mortgage Insurance company will request a copy of your exam, as well as a copy of your medical records. Their need for this information will depend on many factors including your current health, any pre-existing conditions, the amount of the death benefit of the Mortgage Insurance policy, the term length of the Mortgage Insurance policy, as well as your age and build. With this being said, a non-medically underwritten Mortgage Insurance policy is considerably more difficult to qualify for than a fully-underwritten Mortgage Insurance policy.
Understanding the Need for Mortgage Insurance
If you have a mortgage or any other debt that needs to be paid off in the event of your death, you're going to require Mortgage Insurance. Mortgage Insurance acts in the same capacity as a regular term life insurance policy, by you receiving a death benefit for a fixed number of years. After your term has expired, your Mortgage Insurance becomes null and void. There is no cash value to claim unless you purchased a Return of Premium (Money-Back Plan) Mortgage Insurance Policy. Many people refer to a decreasing term life insurance policy as Mortgage Insurance because your death benefit can decrease over time if you choose—just like your mortgage principal does when you pay it. With Mortgage Insurance, you also have the ability to add additional funds to your death benefit to pay for credit card debt, auto loans, home equity lines of credit (HELOC's), and other expenses upon your death. You may even want to add an additional amount to your Mortgage Insurance to replace your annual income, so that your family doesn't have to reduce their standard of living and/or experience any drastic change in lifestyle.
Incontestability Clause
For the first two years of your Mortgage Insurance, the Mortgage Insurance Company is able to contest your death claim. By contesting your death claim, they're simply asking that all of your medical records be reviewed for the possibility that there was information not disclosed on your original Mortgage Insurance application. Once the Mortgage Insurance Company thoroughly reviews your information, they'll pay your death claim if they find no misrepresentation. If they do find that there was a diagnosis, illness, or medication left off of your Mortgage Insurance application, they may refuse to pay your death claim, and instead issue a full refund of your premiums. After two years, the Mortgage Insurance Company is no longer able to contest a death claim. At that point, the death claims they would be able to refuse would be for deaths that were only caused by any of the excluded events. If that is the case, they would fully refund all premiums to your beneficiary(ies) in lieu of the Mortgage Insurance.
Mortgage Insurance Exclusions and Limitations
Mortgage Insurance has certain limitations that will exclude your beneficiaries from receiving your death benefit. Two of the most relevant exclusions are below. * Suicide: If your death is deemed the result of suicide and (in most policies) occurs within three years of your policy's issue date, your beneficiaries will not receive your death benefit from the Mortgage Insurance. Instead, a full refund of all of your premiums will be reimbursed to them. * War and Political Protests: Many policies for Mortgage Insurance will exclude death as a result of active combat in a war from prompting a death benefit pay out. Your Mortgage Insurance may also exclude any death that is a result of being an active part of a political protest. Depending upon your hobbies and your current military enrollment status, it’s important to understand any exclusions and/or limitations before purchasing Mortgage Insurance. Your TermAdvantage agent can always go over the specific exclusions and/or limitations of Mortgage Insurance with you.
