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Understanding Mortgage Life Insurance

The Law of Large Numbers

You probably have wondered how life insurance companies can guarantee payment from the policies of Mortgage Life Insurance they issue. Insurers use what's referred to as the law of large numbers. This theoretical law states that statistics indicate what percentage of people in an age & health class group will need a death benefit payout on their Mortgage Life Insurance.

This knowledge allows the insurer to predict the amount of claims they will need to pay within a group of insureds. It also allows the insurer to set specific rates on Mortgage Life Insurance, at the same time ensuring that their reserves are large enough to pay out claims. This means that you never have to worry about whether or not the insurer can pay your beneficiaries the death benefit they are guaranteed from your Mortgage Life Insurance.

If you're a higher risk to the insurer, your Mortgage Life Insurance will cost more to cover the additional risk. At TermAdvantage, we ensure that you receive the best-priced Mortgage Life Insurance regardless of your risk to the insurer.

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Understanding Insurable Interest

When the underwriters evaluate your application for Mortgage Life Insurance, one of the items they'll research is your choice of beneficiaries. When applying for Mortgage Life Insurance, your beneficiaries must have an insurable interest in your death.

In most cases, the people in your immediate family—spouse, children, siblings and parents—have an insurable interest in you. They would probably suffer financial hardships if you were to pass away, thus your Mortgage Life Insurance is definitely in their best interests.

You simply cannot name the lender who holds your mortgage as a beneficiary of your Mortgage Life Insurance because the insurer views this relationship as having no insurable interest. What you can do is choose a family member as your beneficiary who will be in charge of paying off the mortgage upon your death.

In most cases, insurable interest is only a concern during the application process, so once your policy is issued, you'll be able to change your beneficiary as needed. As you can see, an insurable interest is a very important part of the process for obtaining Mortgage Life Insurance.

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Payout Options

If you pass away while having Mortgage Life Insurance, your beneficiaries will have many decisions to make regarding the payout of your death benefit. There are several different payout options they can choose from regarding your death benefit of Mortgage Life Insurance.

For most beneficiaries of Mortgage Life Insurance, the lump sum payment is the perfect option because they'll receive your entire death benefit in one installment. They can use the proceeds to completely pay off the mortgage or simply continue making the monthly payments.

Your beneficiaries may opt for the life income payout option, which rolls the death benefit proceeds from your Mortgage Life Insurance into an annuity and guarantees them a fixed monthly payment for the rest of their lives.

The interest option allows your beneficiaries to receive the interest earned from your death benefit proceeds of Mortgage Life Insurance. This option gives them a set amount of monthly income from both the principal and interest of your death benefit proceeds, which will be sent to them on a monthly basis until the account is empty. Your beneficiaries will always have access to your entire death benefit should they ever need it.

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Primary vs. Contingent Beneficiaries

When you choose your beneficiaries for your Mortgage Life Insurance, you'll be asked to choose your primary beneficiaries as well as your contingent (secondary) beneficiaries. When you list your primary beneficiaries, you can give 100% of your death benefit to one or several persons, trusts, and/or entities. If you name over one beneficiary to receive your Mortgage Life Insurance, you'll be asked to specify the percentage of your death benefit to which each is entitled.

Contingent beneficiaries are those who receive the death benefit if the primary beneficiaries are deceased at the time of your death. Just like primary beneficiaries, you can give 100% of your death benefit to one or several persons, trusts, and/or entities. If you name over one contingent beneficiary to receive your Mortgage Life Insurance, you'll be asked to specify the percentage of your death benefit to which each is entitled.

You can name your estate as the beneficiary in either the primary or contingent area. If you list your estate as your primary beneficiary, there is no need to choose a contingent. As you can see, designating the proper beneficiary is always a very important step regarding your Mortgage Life Insurance.

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Employer and/or Group Sponsored Life Insurance

You may have access to a group life insurance policy through your employer and/or any fraternal groups or unions in which you're a member. Often, group life insurance seems like a good option, and your premiums are sometimes even subsidized by your employer. The only problem is that it's yearly renewable, which means that every year your policy is renewed at your ‘new’ age and the cost of your death benefit goes up because you'll be one year older. Each year you have a higher premium to pay and to be able to keep your death benefit, you must find a way to fit the increased premium into your budget.

Mortgage Life Insurance completely avoids this pitfall by ensuring that your premiums and coverage amount are guaranteed to not increase for a period of 5 to 30 years. With Mortgage Life Insurance, your premiums remain level even as your age increases, so there's never a concern about how the premiums will fit into your budget. Upon your retirement, your Mortgage Life Insurance generally doesn't transfer with you. Even if it does, your premiums will increase substantially. You're much better off purchasing Mortgage Life Insurance now rather than waiting until your too old to qualify and/or afford it.

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