Mortgage Life Insurance & Mortgage Redemption And Cancellation Life Insurance

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Mortgage life insurance is one of the most important life insurance policies a person who owns a home can buy. Since the ownership of this home is probably the largest investment for most people it is imperative that your investment be protected in the event of premature death with a mortgage life insurance policy. I want to take some time to discuss alternative plans that can be used to do this.

• Mortgage Insurance

  What really is mortgage insurance? Mortgage life insurance pays off the balance owed to the bank or mortgage company in case of your premature death. Let us assume you have a $100,000 25 year mortgage on your house. Let us also assume that after 5 years you have a balance owed of $95,000. Incidentally that figure is not as impractical as it sounds. Your principal decreases very slowly in the early years. Back to our discussion...You now believe you should take out some mortgage insurance because you now have a new baby. What you need is a 20 year decreasing term policy which would usually be sufficient if you should die anywhere within the mortgage period. That is what mortgage insurance is all about.

  Some people add the waiver of premium benefit in case they should become disabled for at least 6 months. The life insurance company will pay the premium for them during their disability even if it is for the rest of their lives. As an alternative to the decreasing term policy some policy owners use a 20 year term policy. If that person should die when there is only $50,000 owed for example, they have a little extra to put in the pockets of the beneficiary. $50,000 to the bank and the other $50,000 to the beneficiary. There is another alternative mortgage life insurance plan if you have some cash to play with.

• Mortgage Redemption And Cancellation Insurance

  Here is how this works. Let us use the above situation as an example. You are at the 5 year point just like in the mortgage life insurance example. What you do is buy a whole life, variable universal life or variable life insurance policy for $95,000, which is the amount owed on the mortgage. You are putting out a lot more premium but if this works right you will be happy about your decision. If you die before the mortgage is paid off the insurance policy will pay it off. As you may or may not know your whole life or variable life policy accumulates cash value. Here is the beauty of the plan...you get both mortgage life insurance and mortgage redemption life insurance in one. There are no guarantees, but at some time between the 5 year point and the 25 year point the cash value of your policy will be equal to the amount owed on the mortgage. You can cash out the policy or take a loan on it and pay off the balance of the mortgage. You would have redeemed your mortgage. You now own your house free and clear. Now is that not a great idea or what?