Mortgage term life insurance is a decreasing term insurance type that is designed for the family breadwinner who needs an inexpensive policy that can give adequate death benefits. These benefits could be used to pay the mortgage in the time of the person’s death. What’s great about this type of insurance is that the premium doesn’t increase.
This is how it works. During the first years of your premium payment, most of it will go to the interest. Eventually the principal decreases and a bigger part of your payment will go to the actual mortgage payment.
The early stage of your payment period is risky for the insurance company. They calculate the expenditure for the risk the insurance company is bearing annually for a certain period of years. Then the insurance companies will give you an average, so that you’ll have a level premium for that period of time. That is why the premium stays the same all throughout your payment period.
With a mortgage term life insurance policy, your payment period is extended so that your mortgage will be paid off by the time of your death. It is a decreasing term insurance because its death benefit decreases each year. The total pay out amount to be given by the insurance company upon the death of the policy owner will be the amount due to the mortgage company or the bank. Thus your heirs will be free of any responsibilities.
For example, your house has a $200,000 on it. If the insurance policy owner died on the first year, the amount to be paid by the insurance company will be equal to the amount owed at that time, in this case it will still be $200,000. If the insurance policy owner died on the tenth year, the amount paid by the insurance company will be equal to the amount owed as well but that amount during that time will be much less than the original amount of $200,000. Your mortgage company can provide you a table so that you’ll know the exact amount due. Your insurance company can do the computations for you.
The good thing about mortgage term life insurance is that in the end, the beneficiaries with have a house that’s free from any mortgage. Even though they would mourn the lost of a loved one, at least they have something that they can truly call a home.