2-Minute Money Manager: Should I Buy Mortgage Life Insurance?

New home
Photo by Andrey_Popov / Shutterstock.com

Welcome to the 2-Minute Money Manager, a short video feature answering money questions submitted by readers and viewers.

Today’s question is about insurance; specifically, a type of insurance that promises to pay off the mortgage in the event of your untimely death.

Watch the following video and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information on this topic, check out “7 Painless Ways to Pay Off Your Mortgage Years Earlier” and “14 Insurance Products That Are a Waste of Money.” You can also go to the search at the top of this page, put in the words “mortgage” or “insurance” and find plenty of information on just about everything relating to these topics.

Also, remember that if you need anything from a better mortgage to help with debt, you’ll find it in our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your 2-Minute Money Manager. I’m your host, Stacy Johnson, and this two-minute answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Today’s question comes to us from Jennifer:

“My boyfriend and I are buying a house together. I recently heard about something called mortgage life insurance. What’s the difference between mortgage life insurance, and regular life insurance?”

Jennifer, here are three things you need to know:

Thing No. 1: It’s insurance that’s tied to a specific debt

Mortgage life is a subset of a category of insurance called “credit life.” Credit life is life insurance tied to a specific debt. It could be a credit card, a car loan or — in this case — a mortgage. It’s simply life insurance that pays off a specific debt if you should die while there’s still a balance.

As we all know, regular life insurance pays a death benefit if you should die within the term of the policy. In the case of life insurance, your beneficiary receives the death benefit. In the case of credit life insurance, the death benefit goes to a lender to retire a debt.

Thing No. 2: The pros of credit life

If you can’t qualify for any other kind of insurance due to poor health or other reasons, credit life offers a way to extinguish a debt if something should happen to you. Also, you typically don’t have to get a physical to prove you’re healthy, as you do with regular life insurance. So, credit life is less hassle.

Thing No. 3: The cons of credit life

There are several disadvantages associated with mortgage life insurance. One thing I really hate about this stuff: You’re paying a level premium every month, but your mortgage is getting smaller. If your debt is declining, shouldn’t the money you’re paying to insure it every month also decline?

Another thing I don’t like: It’s typically more expensive than regular term life insurance. If you’re healthy, you’ll find term life insurance for less than you’ll pay for credit life. Granted, you may have to endure a physical for regular life insurance, but insurance physicals aren’t that big a deal and the savings could be significant.

A final problem with mortgage life: If you die, the proceeds of your policy will bypass your heirs and go directly to your lender. Remember, this is insurance to pay off a mortgage, not to otherwise provide for your family. With regular life insurance, your beneficiary gets the proceeds and uses the money as he or she sees fit. Maybe the beneficiary will pay off the mortgage, but maybe there are other bills that are more important. In short, regular life insurance is more flexible.

Bottom line? Get term life insurance if you can. If you can’t — that is, if you can’t qualify for insurance because of a pre-existing health condition, and really feel the need to protect your family from a mortgage debt — maybe take a look at mortgage life. But make it a last resort.

Want to learn more? Go to MoneyTalksNews.com and do a search for “insurance.” That’s your answer for today. Meet me right here next time!

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds, and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Got more money questions? Browse lots more Ask Stacy answers here.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

10 Ways Anyone Can Earn More Income
10 Ways Anyone Can Earn More Income

Looking for additional cash? Here are a bunch of options that are accessible to anyone with internet access.

5 Ways to Score an Extra Discount at Walmart
5 Ways to Score an Extra Discount at Walmart

Some shoppers are furious that Walmart is ending its Savings Catcher program. But there are other ways to boost your savings in the retailer’s stores and at Walmart.com.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you stashes of cash. Here’s how to get there.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.