Is There a Type of Homeowner’s Insurance That Pays the Policyholder’s Mortgage Upon Death?

Written by James Hirby and Fact Checked by The Law Dictionary Staff  

If you're like most people, your mortgage is likely to be the largest loan that you ever float. Unless you take out a sizable loan to open your own business or finance a private-school education with student loans, it's unlikely that any of your other loans will even approach the size of your mortgage. If you're unable to pay it off according to the schedule that your mortgage lender sets, you could find yourself in serious financial trouble. Worse, you could be in danger of losing your home to foreclosure.

Unfortunately, you need to entertain another possibility as well. Although it's not highly likely, there's a decent chance that you could die with an outstanding balance on your mortgage. The likelihood of this will depend upon your age at the time of the mortgage's origination as well as the state of your health in the subsequent years. If you purchase a home at the age of 50, statistics dictate that you have a 40 percent chance of dying before settling your 30-year mortgage. If you're worried about leaving a substantial amount of debt hanging over your estate, you may wish to accelerate your mortgage's payoff by procuring a 15-year loan.

If you can't afford to do this, you might have another option at your disposal. An increasingly popular form of life insurance known as "mortgage protection insurance" may permit you to pay off the outstanding balance on your loan at the time of your death. Under the right circumstances, this could prevent your mortgage lender from seizing the title to your home and initiating foreclosure proceedings in an effort to recover the remaining balance on the loan. By extension, mortgage protection insurance might enable your family to retain possession of your home and enjoy a comfortable place to live for years to come.

However, mortgage protection insurance has certain key drawbacks. For starters, it can be expensive. This type of insurance is generally added onto your total monthly mortgage premium. Although this exact surcharge will depend upon the value of your home, it could easily exceed $100 per month. In addition, the premium will remain constant over time. As such, its implicit value will decrease along with the remaining balance on your mortgage. If you die when you have just a few thousand dollars left on your mortgage's balance, your insurance benefits will be smaller than the total value of the premiums that you paid over your mortgage's lifespan.

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