Term Life Insurance vs Mortgage Life Insurance

Insurance can play an important role when you buy a home or are planning for your family's future. Term life insurance and mortgage life insurance are two different types of optional coverage that can help provide financial protection in the event of a death. So, what's the difference between term life insurance and mortgage life insurance? Term life insurance provides a defined coverage amount for a set period and pays a death benefit to the named beneficiary or estate if the insured individual passes away during that period. Mortgage life insurance is linked to your mortgage and can help pay down the mortgage balance if the insured individual passes away.

Let's see how each product works, how they are different, and how both can complement each other.

Term life insurance provides a tax-free one-time payment in the event of a covered event to the beneficiary or beneficiaries that you choose as the policy owner. You can also choose your estate as the beneficiary; however, the death benefit may be subject to probate and could take longer to distribute.

With term life insurance, your coverage amount stays the same throughout each term, and the payout can be used by the beneficiaries however they see fit or by the estate as the beneficiary. For example, the death benefit can be used by the beneficiaries to pay down or off a mortgage, help cover living expenses, or for other financial needs.

With term life insurance, you make regular premium payments to keep the policy active. The premium stays the same for the entire term. When your term ends (for example every 5, 10, 20, or 30 years), the policy will automatically renew, and your coverage will not change. However, your premiums will increase to reflect your age at the time of renewal. A term life policy can end if premiums are not paid, the policy is cancelled, or the insured person passes away.

Mortgage life insurance is a specific type of optional mortgage protection insurance. You can apply for mortgage life insurance when you get your mortgage. If you pass away and your claim is approved, the death benefit goes directly toward the remaining mortgage balance.

Term life insurance:

• More comprehensive underwriting process
• May require a medical exam
• More detailed application process
• Eligibility is typically determined when coverage is approved
• Coverage is based on your individual needs and circumstances 

Mortgage life insurance:

• Simplified health questions
• Usually, no medical exam is required
• Faster application process
• Health eligibility may be reviewed again at claims time
• Coverage is tied to your mortgage

Both term life insurance and mortgage life insurance can be useful options when it comes to helping financially protect what's most important in life. However, there are some particular reasons why someone might consider mortgage life insurance.

• You want convenience: Mortgage life insurance is typically available when you are obtaining or renewing your mortgage. This gives you the option to set up your coverage when arranging your mortgage, so you don't have to shop around for a separate policy. 
• You want to help financially protect your mortgage: With mortgage life insurance, you know exactly how the death benefit will be used. It will go directly to paying down or off the insured mortgage balance. The decision will not be left up to a beneficiary or the estate.
• You want additional protection for your mortgage balance: If you already have a term life insurance policy, you may want the additional financial protection that comes with mortgage life insurance.

Both term life insurance and mortgage life insurance can help provide important financial protection. However, they do so in different ways. The term life insurance death benefit goes to your named beneficiaries to use however they choose, whereas with mortgage life insurance, the benefit goes toward the outstanding mortgage balance. It's important to consider mortgage life insurance and term life insurance when reviewing your coverage options. Explore your options to help determine what coverage may fit your needs.

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• Death benefit: This is a payment to a designated beneficiary or beneficiaries or estate when the insured person passes away.
• Beneficiary: This is the person or persons named to receive the death benefit on the death of the insured person.
• Claim: It is a formal request to an insurance company to pay out the benefit covered under the contract.