Taking a Life Insurance on Your Mortgage or a Term Life Insurance? Part 2

Last Friday, I explained how the life insurance on a mortgage works. However, if you do not combine the life insurance with another type of creditor insurance (such as disability insurance or critical illness insurance), chances are that your life insurance will become quite expensive.

If you shop around and look for other option, you will soon come to see an insurance broker/agent that will look at your overall insurance needs. There will obviously have an amount to be covered that comes from your recent mortgage. Here’s a way to cover your mortgage with a term life insurance:

#2 Term life insurance from a broker

Term life insurances are pretty easy to understand. You pay during a specific period of time (usually 10 years or 20 years). The insurance coverage last the very same time. Therefore, you benefit from a temporary insurance coverage that will eventually expire.

This is actually a good thing as your mortgage won’t be eternal as well. Many term life insurance offer conversion option into a longer term or a whole life / universal life insurance policy. In a case of a mortgage, this could be useful if you plan to sell your house and buy a bigger one with a similar mortgage in the future.

While the T10 and the T20 are the most common type of term life insurance, I know that there are other terms that could fit best your insurance needs. You can also use a combination.

IF you have a 300K mortgage over 30 years. You would take a 100K T10, 100K T20 and a 100K T30 (if it exists). Therefore, your insurance coverage will drop every 10 years as your mortgage balance does over time. You will be “fully covered” during your 30 years but you won’t have to pay for a full 300K T30 either.

The price for a term life insurance is usually much lower than the regular creditor insurance. Even though it is the same price, remember that the full amount of coverage is payable upon death during the time of the contract. If you pass away after 19 years of paying down your mortgage, the lump sum payment from the bank will be pretty far away from the original mortgage amount! We never look for insurance in order to “make gift” but getting extra money when you lose someone you love could never hurt!

• Taking a Life Insurance on Your Mortgage or a Term Life Insurance?
• Financial Cliché III: A 100K life insurance is enough for everybody
• Critical Illness, Long Term Care and Disability Insurance – What’s in it for me?
• My Choice of a Life Insurance Policy Part 2
• Making Money From Your Life Insurance Policy

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