Mortgage Protection Life Insurance

Life insurance set up so your family can stay in the house if something happens to you. This page explains how it works and where its limits are.

Nick Chiasson, independent advisor in Abita Springs

Book a Free 30-Minute Call

Rather talk now? Call (985) 317-5416

Independent Advisor | Based in Abita Springs

Licensed in Louisiana, Texas, Mississippi, Alabama, and Florida.

What a Call With Me Covers

The call is 30 minutes about three things: your mortgage, the coverage you already have, and a monthly amount that is comfortable for you. I explain which types of coverage fit and which do not, and if you want to move forward I compare the companies I work with and we apply with the one that fits. If it turns out you are already covered well enough, I will let you know.

Rough numbers are fine, and there is a short list of what to have handy further down.

What Mortgage Protection Actually Is

Mortgage protection is not a special kind of insurance. It is life insurance that you buy with the house in mind, usually sized to your mortgage balance and timed to last about as long as the loan, so that if you die while the mortgage is still being paid your family receives money they can use to keep the home.

A mortgage does not go away when a borrower dies. Whoever wants to keep the house has to keep making the payment, and for a lot of families that payment was built around two incomes or around one income that is no longer there.

PMI, Homeowners Insurance and Mortgage Protection Are Not the Same

You may already be paying for the first two. Neither one pays your family anything if you die.

Private Mortgage Insurance (PMI)

Who it protects

Your lender.

What it does

Lenders may require it on a conventional loan when the down payment is under 20 percent, and FHA loans carry their own mortgage insurance. It covers the lender's loss if you stop paying. It does not make your payment, and you can still lose the home to foreclosure.

Homeowners Insurance

Who it protects

The house, your belongings and your liability.

What it does

It pays for covered damage to the structure and your property and for injuries to other people on your property, and most lenders require it for as long as you have the loan. It has nothing to do with whether the payment can be made after a death. I do not sell homeowners insurance.

Mortgage Protection (Life Insurance)

Who it protects

Your family.

What it does

It pays a death benefit to the beneficiary you name if you die while the policy is in force, and they decide how to use it.

The Coverage Choices That Matter

Level term that matches the loan

For most homeowners this is the starting point. A term policy covers you for a set number of years, commonly 10, 15, 20 or 30, and the death benefit stays the same the whole time. Matching the term to the years left on the mortgage means the coverage is there while the debt is, and because the balance drops every year while the benefit does not, the gap grows into extra money for your family. If you want the longer comparison, I wrote out how term and whole life differ and who each one fits.

Decreasing term and mortgage life that pays the lender

Some policies are built so the death benefit goes down over time to roughly follow the loan balance, and some credit life and mortgage life products pay the lender directly instead of your family. That can be a reasonable fit when the only goal is making sure the loan is cleared. Before you choose one, ask whether the premium stays the same while the benefit goes down, and compare it against a level term policy for the same years so you can see both side by side.

Permanent coverage

Whole life and indexed universal life are designed to last your entire life and cost considerably more for the same death benefit. They are usually not the right tool for a debt that ends on a known date, although they can make sense when there is also a need that does not end, such as final expenses or money you intend to leave behind.

How much: the balance, or the balance plus income

Covering only the mortgage balance leaves your family with a paid-off house and the same property taxes, insurance, utilities and groceries, but without your paycheck. That is why I look at the mortgage as one piece of the number rather than the whole number. The method I use is laid out step by step in How Much Life Insurance Do I Need?

Riders

Riders can add features such as an accelerated death benefit, which can pay part of the benefit early if you are diagnosed with a qualifying terminal or serious illness, or a waiver of premium if you become disabled. Riders differ from company to company and state to state, they have their own conditions, and most of them add to the cost.

Eligibility and the Limits You Should Know About

I would rather you hear these from me now than find them in the policy later. Policies and state rules differ, so the policy itself always has the final word.

Eligibility and price depend on underwriting. Insurance companies look at your age, health history, tobacco use, occupation and sometimes hobbies, so not everyone qualifies for every policy, and any number you see before a company has reviewed your application is an estimate.

Answer the application questions fully and accurately. During a policy's contestability period the insurance company may review the application and contest a claim over a material misrepresentation, subject to the policy and the law in your state.

Policies generally exclude death by suicide during an initial period that is stated in the policy.

When the initial term ends, your options depend on the policy. Some policies can be renewed without a new medical exam, usually at a higher premium based on your age at that time, and some can be converted to permanent coverage within a set window. A standard term policy generally does not pay anything simply because you outlived the term, although return-of-premium policies work differently. Which of these are available depends on the company and the policy.

Coverage only stays in force while premiums are paid. Policies generally include a grace period after a missed due date, and after that the policy can lapse.

Life insurance pays when someone dies. It is not disability insurance or job-loss coverage, and it will not make your payment if you are hurt or laid off unless the policy has a specific rider for that and you meet its conditions.

New policies come with a free-look period, and its length depends on your state. During that time you can return the policy for a full refund for any reason.

Questions Homeowners Ask

Is mortgage protection the same thing as PMI?

No. PMI protects your lender if you stop making payments and pays nothing to you or your family. Mortgage protection is life insurance that you own, and it pays the people you name if you die.

I got a letter about mortgage protection right after closing. Is it from my lender?

Usually not. Home sales and mortgages are public record, and companies use that information to mail offers that can look official and may even show your lender's name and loan amount. Read the fine print for a line saying the sender is not affiliated with your lender. The letter is an advertisement, and you are free to compare it with other options before you respond to anyone.

Should the policy pay my lender or my family?

With an individual life insurance policy you choose the beneficiary, so the money goes to your family and they decide whether to pay off the house, keep making the payment, or sell and move. Some mortgage life and credit life products pay the lender instead, which clears the loan but takes that decision out of your family's hands.

I have life insurance through work. Is that enough to cover the house?

It can be part of the answer, but look at two things. Group coverage through an employer is often limited to one or two times your salary, which may not cover the mortgage and replace your income, and it typically ends when you leave that job. A policy you own yourself stays with you when you change employers.

What happens to the policy if I refinance, sell or move?

A life insurance policy that you own is not attached to the loan or the house. If you refinance or move, the policy stays in force as long as the premiums are paid, and you can ask to have the coverage reviewed if the new mortgage is larger or smaller than the old one.

Do both of us need a policy?

If the household would struggle to make the payment without either person's income, or without the childcare and work at home that one of you provides, then it is worth looking at coverage on both of you, which sometimes means two policies of different sizes.

Will I need a medical exam, and can you tell me the price up front?

Depending on the company and the amount of coverage, the review can include a medical exam or it can rely on health questions. An initial quote is an estimate, and final eligibility and premiums for the coverage we discuss depend on the insurance company's review and the terms of the policy.

Is the payout taxed?

According to the IRS, life insurance proceeds paid to a beneficiary because of the insured person's death are generally not included in gross income, although any interest paid on those proceeds is taxable. I am not a tax advisor, so check your own situation with one.

What to Have Handy for the Call

You do not need paperwork in front of you. The call goes further when you know roughly:

Your mortgage balance, your monthly payment and how many years are left on the loan

Who depends on your income, and whether the household could make the payment on one income

Any life insurance you already have, including coverage through work, and the amounts

Your general health history, current medications and whether you use tobacco

A monthly amount that would be comfortable, so I only show you options that fit it

Anything you have been offered already, including a letter that came after closing, if you would like a second look at it

Who You Will Be Talking To

I am Nick Chiasson, a licensed insurance agent and the owner of Chiasson Consulting in Abita Springs, Louisiana. I am independent, which means I am not tied to one insurance company and I can compare several of them for you. I am licensed in Louisiana, Texas, Mississippi, Alabama and Florida, and those are the states where I can help you.

You do not have to take my word for the license. You can look me up by name through the Louisiana Department of Insurance agent search. You can also read more about how I work.

Book a Free 30-Minute Call (985) 317-5416

The booking calendar is labeled "Life Insurance Consultation." That is the right one for mortgage protection. If you would rather write than call, you can send me your details here.

Sources

These are the public sources behind the general explanations on this page. They describe insurance in general, and the terms of an actual policy always control.

Want to Know What It Would Take to Protect the House?

Book a free 30-minute call and we will work through your numbers together.

Book Your Free Call

Or call (985) 317-5416