Owing your own home is not only one of the best investments but also comes with the freedom of living under your own roof and providing a permanent shelter for your family. To prevent that investment from turning into a burden in your absence, you need to take the right step of obtaining mortgage life insurance policy against your house.
In case you die leaving behind your home loan, the mortgage life policy you have against your house will settle your loan balance to the financial institution.
Generally, a decreasing term policy would work best as the mortgage life insurance. In this case, as the years pass, your mortgage will decrease (as you pay off) and simultaneously, your mortgage benefits and premium will decrease. The insurance is valid until your mortgage period. You could also go for level term policy where coverage and premium (in most cases) stay the same through out the period. You can get riders with these term policies for additional benefits to your beneficiaries.
While these are the term life options, you could even work a permanent life policy as a good mortgage life insurance. This option is called the mortgage redemption and cancellation insurance.
Under this option, you need to buy a permanent life policy: whole, universal or variable, with the coverage amount matching your mortgage. Compared to term life policies, you would be paying more in premiums towards a mortgage redemption and cancellation insurance policy. However, the benefits the policy offers make up for this pinch.
The mortgage redemption and cancellation insurance policy has cash value build up or investment options. Using this cash value, dividends or investment returns, you can get a lump sum to pay off your mortgage, well before its expiry period and be debt free.
In the event of your premature death, the mortgage redemption and cancellation insurance policy would pay off your mortgage. Otherwise, it offers you the option of paying off your mortgage with its cash value, enabling you to be free of your commitment long before your mortgage period.