Mortgage Protection

Typically, a home is a family’s greatest investment and their largest monthly expense. When you die, the mortgage payment is still owed unless you put insurance protections in place. Mortgage protection life insurance offers several options to protect the family home from foreclosure.

Decreasing Term Insurance

Let’s say you have a home mortgage balance of $150,000 with 10 years remaining. One policy option might be a 10-year deceasing term policy to run the remaining years of the mortgage. With decreasing term, the premium would remain level over the term of the policy, and the death benefit will decrease as your mortgage balance declines.

Return of Premium Insurance

Another option is return of premium (ROP) insurance. (Depending on the carrier, this type of insurance may be identified by other names.) Let’s suppose in this example that you’re 34 years old and have a new 30-year mortgage at a 3% interest rate and a $200,000 balance.

You would take out a 25-year ROP policy with a monthly premium of $160 and a benefit amount of $200,000 payable on your death. Should you die during the 25-year policy period, your beneficiaries will receive $200,000. However, should you outlive the 25-year ROP policy, you will get back 100% of the premiums you paid. That would be $48,000 of your money back tax-free. Based on this example, the remaining balance on your mortgage would be just under $47,000. You could pay off your mortgage balance and have a debt-free home in 25 years. And the best news is you’re still alive to enjoy it!  Note: All payouts would be less any fees, interest, or charges incurred such as for policy loans you’ve taken.

Multiple Policies

Expecting one insurance policy to do all things or one type of policy to cover all needs can be ineffective and costly.  For instance, you may have a current need for $500,000 in coverage, but expect to need much less insurance in the future.

In this example, let’s say you have that home mortgage balance of $150,000 with 10 years remaining. You choose to buy one policy with a 10-year deceasing term to run the remaining years of the mortgage. With decreasing term, the death benefit will decrease as your mortgage balance declines.

You might then choose to own a second policy that builds cash value to borrow against for a future event—perhaps a child going off to college. Remember that the first policy for the home mortgage is term insurance and will not build cash value. The result of having two policies is that you’re not buying more coverage than you need for longer than you need, which might be the case with the purchase of one $500,000 policy.

Wealth Creation Strategy

Life insurance is an effective wealth creation strategy unlike no other in the world. You do not have to be wealthy to engage in effective wealth building strategies. There is no cost to request a quote for mortgage protection or to schedule a phone call to discuss effective strategies for you and your family.