Is Mortgage Insurance Better Than Life Insurance to Pay Off a Mortgage Upon Death?

by Luke Arthur ; Updated July 27, 2017

When you have a family and a home, you may want to ensure that the mortgage is paid off when you die. For this need, you could buy mortgage life insurance or a regular life insurance policy. Whether one of these policies is better for you than the other will depend on your situation.

Mortgage Insurance

Mortgage insurance is a product that is typically sold by mortgage lenders when you buy a house. You can also buy this product from a private insurance company on your own. With this type of insurance, the insurance company will pay your mortgage balance if you die before it is paid off. Instead of paying your family directly, the insurance company pays the lender directly. This eliminates the mortgage balance and gives the house to the family members free and clear.

Life Insurance

Life insurance is a product that provides your family members with a lump sum benefit when you die that is paid directly to the beneficiaries rather than the mortgagee. You could choose one of several types of life insurance for this need. For instance, term life insurance could be purchased for a specific number of years. You could also choose to buy whole life insurance, which provides permanent protection as long as premiums are paid. If you buy a basic term policy, it will generally be less expensive than a mortgage life insurance policy.

Decreasing Benefits

One of the primary reasons that most people prefer life insurance to mortgage life insurance is because of the decreasing benefit involved. With a regular life insurance policy, the death benefit remains level over time. With a mortgage life insurance policy, the death benefit decreases because you are continually paying down the balance on your mortgage. With this kind of policy, the insurance company only pays the amount that you still owe on the mortgage instead of the value of the house.

Freedom of Choice

Because the payment is made directly to the beneficiaries, a regular life insurance policy provides more freedom of choice. The beneficiary might decide it makes more financial sense to make only a small payment, or none at all, toward the mortgage, and, instead, use the money for other things, like a college education or an investment. This can be a good thing, if you trust your beneficiaries to make the best choice. If not, a payment that goes directly to the lender might be a better idea.

No Medical Exam

One scenario in which mortgage life insurance could be helpful is when you cannot qualify for normal life insurance due to health problems. With regular life insurance, you often have to pass a medical exam before you can qualify. Most mortgage life insurance plans do not require you to get a medical exam. In this case, you could still provide a way for your mortgage to be paid off for your family, even if you have a serious medical condition.

About the Author

Luke Arthur has been writing professionally since 2004 on a number of different subjects. In addition to writing informative articles, he published a book, "Modern Day Parables," in 2008. Arthur holds a Bachelor of Science in business from Missouri State University.