Understanding the right insurance to obtain can be difficult because each product works a bit differently. Some are geared towards investing and building your policy while some are a straightforward payout. More specifically, understanding which life insurance to select can be even more challenging because you must take into consideration costs such as your home, funeral expenses, and simply the cost of living. This article will go over two popular products, mortgage protection insurance and term life insurance, highlighting the benefits of each, and which one might be better.
First, we’ll go over what exactly mortgage protection insurance. As you can deduct from the product name, this insurance policy is designed to cover your mortgage. Mortgage protection insurance is a type of life insurance that will cover your mortgage payment should you pass away while payments are still being made. In the event the policy pays out, the insurance provider will pay out the sum to the lender, who will pay off the note. If there are any excess funds that remain after the note is paid off, they will be given to the estate or beneficiary.
Another benefit to mortgage protection insurance is if you become disabled or lose your job, the insurance policy will cover payments for a certain period. Data points that factor into the cost of your mortgage protection insurance include length and amount of the note, current age, and overall health. Like any insurance, those factors will have great impact on the premium you pay.
The other product for our review is a standard term life insurance policy. A term life insurance policy is a fixed payment product that is for a set duration and should the insured individual pass away, the policy is paid out to the beneficiary or estate. However, should you outlive the term of your policy, you will have to obtain new insurance elsewhere or work with your current provider to agree on updated terms.
Primarily, this type of life insurance policy is used to cover financial needs in the event of an unexpected death and assist with the transition process for the affected individuals. While straight forward, it does leave room for risk and other events to occur.
Benefits of Mortgage Protection Insurance
Returning to mortgage protection insurance, there are several benefits that warrant this over term life insurance, and the first is it covers your home in the event of an unexpected death. When the incoming revenue is constricted due to an unexpected passing, this policy will remove one of the costlier debts. Also, since the policy is paid to the lender first, it doesn’t allow for the funds to be misused.
Another benefit to consider over term life insurance is that once your home is paid off, the policy is no longer effective, saving you money. The reason it may be less important to obtain life insurance after your home is paid off is all of those funds used in paying off your home can now be driven towards building a large nest egg, eliminating the need for insurance because you have cash set aside.
Benefits of Term Life Insurance
While mortgage protection insurance seems beneficial, term life insurance does have some perks of its own and the first is flexibility should the policy pay out. If the insured passes away, funds are distributed to the beneficiary and can be used as they see fit. That means it can cover funeral costs, living costs, and everything in between.
Another benefit to term life insurance is the policy can be obtained when deemed appropriate. With mortgage protection insurance, it can only be obtained if there is a mortgage and payments are still being made. Having less restriction on the ability to obtain the policy can greatly benefit individuals.
Which is Better
Both products and services can be beneficial but for this article, we must choose a winner. For many, mortgage protection insurance is likely to be the better option and here’s why. A home is arguably the most expensive cost in personal finance, and if you can cover the mortgage with an insurance policy that is the way to go. If the insured passes, funds are paid directly to the lender and if there are any extra the beneficiary will receive those funds.
Yes, the policy will cancel once the home is paid off, but then you can take those dollars that were being paid towards the debt and premium on the policy and build your own cash reserve that may act as a policy. If done correctly, this can be a cost-effective way to protect on of your largest assets as well as your loved ones.
While each situation is important, it is critical to assess your situation individually and find what fits your needs best. Research each product carefully and if you have questions, reach out to an experienced insurance professional. While these are in place to protect your loved ones, it’s also important to weigh the pros and cons of each.