Decreasing Term Mortgage Life Insurance
Decreasing term mortgage insurance used to be the mort popular plan (about 15 years
ago). Although, it does a wonderful job at paying off a mortgage in case of death or pay the monthly mortgage payments in case of disability, it simply has become too overpriced. The insurance of choice, at a much better rate is level mortgage insurance. But lets talk about decreasing term insurance for now.
How does mortgage decreasing term life insurance work and what is it?
There are two aspect to decreasing term mortgage insurance, mortgage life insurance and mortgage disability insurance. Decreasing mortgage life insurance pays off your loan or mortgage in case of death. The way that decreasing mortgage insurance is structured, is that at any point during the life of your mortgage, your mortgage life insurance plan will pay off exactly or close to exactly what you owe on your mortgage in case of death.
For example, john has a $300,000 mortgage. He decides that he will get a decreasing term mortgage life insurance policy to cover his mortgage. After 15 years, John calls his agent to check on his policy. The agent tells him that his policy is now down to a $150,000 death benefit. John checks to see what his mortgage pay off amount is and finds out that he owes the lender $145,000. If John were to pass way on that day, the mortgage would be paid off and the surviving beneficiaries would get the remaining $5,000. The closer John gets to the end of his mortgage, the lower the insurance goes until it reaches zero.
Mortgage disability insurance on a decreasing term policy works about the same way as on any term policy (level or decreasing). To learn more about mortgage disability insurance please go here.
Should you have the policy pay the lender directly or pay to a beneficiary?
Well, if your policy is through a lender, you don't have any choice. But if have been fortunate enough to get your policy, then you should make sure that the proceeds go to a person. It will give your beneficiaries a lot more control over the payment and how best to handle it. You can read more on this here.
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