Life insurance is taken to protect dependents in case of a person’s unexpected demise. However, at the time of death, the person could have a huge mortgage to pay off. Buying a home is usually the largest investment that a person makes in his/her life. In the event that you are no longer there, you would like to ensure that your spouse and children have a roof over their heads. Your dependents should not be scrambling for funds to pay off the mortgage. Hence, mortgage protection is a critical element in one’s life insurance policy.

Mortgage protection life insurance ensures that following a policyholder’s demise, the dependents receive not only the death benefit but also funds to pay back the mortgage. There are two types of mortgage protection life insurance. These are:

Decreasing Term This type of mortgage protection life insurance is suitable if you have a mortgage wherein the principal amount decreases over the term of the loan. As your principal amount (or the amount required to repay the loan completely) decreases, the insured amount also reduces. In decreasing term life insurance, your death benefit would match the principal amount remaining on the mortgage. In case you outlive the policy, beneficiaries do not receive anything from the insurance company.

Level Term This type ofmortgage protection life insurance is suitable if you have a mortgage wherein the principal amount remains fixed. This is the case for interest-only mortgages, under which you pay only the interest amount of the loan over the term of the mortgage. The insurance cover also remains unchanged through the term of the policy. In case you outlive the policy, the beneficiaries do not receive anything from the insurance company.

Most mortgage protection life insurances, whether decreasing term or level term, include the terminal illness cover. This allows your dependents to receive insurance benefits the moment you are diagnosed with a fatal illness.

Unlike regular life insurance, mortgage protection life insurance does not give the beneficiaries the flexibility to invest the money received. The money will have to go towards paying back the mortgage.

A huge advantage of mortgage protection life insurance is that it is not impacted by declining housing prices. The insurance benefit is related to the mortgage and not the value of the home. So, even if there is a huge reduction in the home’s value, the insurance amount will remain the same.

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