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When you purchase a home, your lender will offer you mortgage credit life insurance, which is designed to payoff the loan in the event of your death, preventing your family or dependents from losing the home. However, in many cases, buying credit insurance for a specific loan can be a very costly choice.
The Cost of Mortgage Credit Insurance
The cost of mortgage credit insurance, rather than being a flat premium, is based on the amount of your loan and typically determined using $1,000 rate. Unfortunately, the cost of the insurance may remain high but the payout will decrease as the principal balance decreases.
In the event of your death, it is the bank holding your mortgage who becomes the beneficiary, not your family. This type of insurance is designed more to protect the lender than to protect you.
Other Options to Protect Your Property
If you have property you wish to protect for your family in the event of your untimely death, mortgage credit life insurance may not be your best choice. You can purchase a term life policy that will remain in effect as long as there is a mortgage to pay (typically 20-30 years). Term life insurance is a low-cost solution to protect your family's interests.
If you want insurance that will continue to be available even after your debt is paid, a good universal life or whole life policy would provide a death benefit directly to your heirs, a portion of which could be used to either pay off the mortgage or continue making the payments so that the property is not lost. This type of life insurance would continue to provide a payout even if you had no debt, and could cover the cost of settling your estate.
Credit Disability Insurance
Often, credit life insurance will do you no good if you become disabled and unable to work or make payments on your loan. Credit disability insurance protects you when you become chronically ill or disabled and unable to work. Be cautious, however, in your approach to credit disability. The credit disability insurance typically offered by your credit card company will not do any more than pay the minimum payment on your credit card bill, leaving you with tremendous debt and wasted interest payments.
A good credit disability coverage can be provided through a reputable agent as a rider to your life or health insurance policy and should provide adequate protection against loss of property when you are unable to work.
Mortgage Credit Life Insurance: A Smokescreen For Buyers?
