Is Mortgage Insurance a Good Idea?

When you have the opportunity to buy a home, your mortgage company may offer a mortgage insurance policy that will pay off your mortgage in the event of your death.

This is not the same as private mortgage insurance (PMI) which is typically required if your down payment is less than 20 percent of the home’s value and only protects the lender if you default. You can decline the offer by filling out the appropriate documentation.

So how is this different from a life insurance policy?


  • The beneficiary is usually the lender and the flexibility to use the money in other ways does not exist
  • Finance charges may be added to the loan
  • Licensed insurance agents are not involved in the application process
  • Rates are not guaranteed
  • Declining benefit amounts exist that pays the amount on the mortgage balance
  • Ability to convert to another policy is not a possibility

Life insurance policies offer more variety and, in the long run, may be a better decision unless your health is poor and your chances of getting a reasonable policy is low. Because of this, you may be approved for a mortgage life insurance policy instead because they are marketed by the mortgage lenders and the underwriting process is different. No medical exams or blood tests are required.

Overall, term life may be the best choice for you to pay your mortgage and leave money because with most life insurance, the benefit stays the same or grows over time. Mortgage life insurance may not be enough and leave your family short.

Really do your homework when researching options and understanding both life insurance and mortgage insurance. Mortgage insurance can be costly, more than a life insurance policy with decreasing benefits. Not the best decision if you are a non-smoker and in great health. Term policies will help add to your savings as well.

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