Mortgage Term Insurance

Mortgage Life Insurance For Home Buyers

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Mortgage term insurance is the type of life insurance that every homeowner knows about. The real estate agents certainly let them know about it. Some of the smart ones are even licensed agents. They make a little extra money selling these policies.

Mortgage life insurance is one of these things that everyone who buys a home should own. Here is how is works. When you buy a home the bulk of the cost is usually carried by a bank or mortgage company. Let us suppose you bought a home for $300,000. Let us also suppose you make a down payment of 20%. You have decent credit so the bank lends you $240,000. You had paid down $60,000.

Each month you make your payments. In the initial years the majority of your payment goes to pay interest. As time goes by your mortgage balance decreases as more of your payment is applied to principal.

At the time you bought your home you wisely bought a mortgage term insurance policy. This policy had a death benefit of $240,000. As your mortgage balance decreases the death benefit of the policy also decreases.

This policy is really designed to keep abreast of your mortgage so that upon your death the mortgage is paid off in entirety. The premiums for this policy never decrease.

This is very cheap life insurance but it guarantees that your loved ones will get a home free and clear when you die.

Some people prefer to use a level term policy to cover their mortgage. If the mortgage is for 20 years they buy a 20 year term policy. If the mortgage is for 25 years they buy a level 25 year term life insurance policy.

If death occurs in the first year the mortgage is paid off and that is it. If you should die after 5 years or 10 years, for example, then there is an amount that is more than the mortgage balance payable by the life insurance company. The extra amount goes to the beneficiary of the policy.