Mortgage Protection with Life Insurance

Housing and household expenses, including mortgage payments, make up the largest portion of living costs in the U.S.¹ Mortgage protection life insurance can help ease the financial burden on surviving loved ones by paying off the mortgage if the homeowner passes away while the policy is active. Although Aflac doesn’t offer mortgage life insurance, our term and whole life insurance policies offer payouts that beneficiaries can use to help cover mortgage payments and other expenses. This article will explain how mortgage life insurance works to see if it’s right for you.

5 Min Read

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Key Takeaways

Mortgage life insurance allows beneficiaries to pay off a policyholder's mortgage debt if they pass away during the policy term.
Some advantages of mortgage life insurance are that it doesn't require a medical exam and you pay level premiums, while some drawbacks are that it can be expensive and you have to use the benefit to pay off the mortgage.
While Aflac doesn’t offer mortgage protection life insurance, we do offer term and whole life insurance policies with competitive coverage and reasonable premiums.

What is mortgage life insurance? 

Mortgage life insurance, or mortgage protection insurance, is a unique form of life insurance designed to pay off the policyholder’s mortgage if they pass away during the policy term.² This helps beneficiaries eliminate significant debt, which can save them a lot of money each month. Plus, it gives them access to more equity in the home to borrow against or gain more proceeds if they sell it.

Although Aflac doesn’t offer mortgage life insurance, our term and whole life insurance policies offer payouts beneficiaries can use to help cover mortgage payments or even pay off the mortgage, alongside other expenses.

Pros and cons of mortgage life insurance 

Here are some advantages and drawbacks of mortgage life insurance.

Pros of mortgage life insurance

No medical exam: Mortgage life insurance policies generally don’t require a medical exam and, in some cases, may not even ask health questions.³
Adding riders: Riders are add-ons with which you can customize your mortgage life insurance policy. For example, a waiver of premium rider helps cover premiums if you become disabled and unable to work during the policy term.³
Easy to manage: Mortgage life insurance is designed to be easy to manage, and the death benefit goes straight to the lender. Your beneficiaries must file a claim, but don’t have to manage the funds once paid out.³

Cons of mortgage life insurance

Limits to death benefit: Since lenders receive the proceeds, beneficiaries can’t use them to help pay other debts or expenses.³
Decreasing payout: These policies are designed only to pay off a mortgage, so while you continue to pay the same premiums, the death benefit decreases as you pay down your mortgage.³
Decreasing Benefit, Level Cost: While the payout decreases as your mortgage balance drops, your premiums often stay the same, making the coverage less cost-effective over time.³
Potential for no benefit: If the policyholder pays off the mortgage before they pass away, the premiums that they’ve been paying will not give the beneficiaries any death benefit.³
Can be expensive: Mortgage life insurance can be expensive for the level of coverage you can receive since there’s no medical exam. Additionally, your cost per dollar of coverage increases with time since premiums are level while the death benefit decreases.⁴
No cash value: Mortgage life insurance lacks the cash value growth component of permanent life insurance. Therefore, you can’t use it as an additional wealth-building vehicle while the policy is active.⁴

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How mortgage protection life insurance compares to other policies

Here’s how mortgage life insurance compares to traditional life insurance policies:

Term life insurance: Term life insurance lasts a fixed period of 10 to 30 years. Many types also have level premiums, but they tend to be lower per dollar of coverage. Beneficiaries can use the payout to cover any expenses, including paying off a mortgage.
Whole life insurance: Whole life insurance is a policy that lasts for life. Premiums are higher than term life insurance, but also level. These policies also build a cash value growth component over time, which you can access through policy loans or withdrawals to cover a mortgage or other expenses while you’re still alive.

Is mortgage life insurance right for me?

Consider the following to determine if mortgage life insurance is right for you:

Your loved ones’ financial needs: If your loved ones rely solely or heavily on your income, a mortgage life insurance policy can be helpful. It helps you avoid burdening them with a large, long-term debt while allowing them to gain full ownership of a valuable asset if you pass away.

Your mortgage balance and term: If you’re close to paying off your mortgage, you may not need a mortgage life insurance policy. On the other hand, a large balance or long remaining term may necessitate getting a policy.

Your budget: Mortgage life insurance has a high cost per dollar of coverage. Weigh your budget against your life expectancy and loved one's ability to pay off the mortgage.

Interest rates: If your mortgage has a low interest rate and your loved ones can afford to live without your income, you may consider a traditional life insurance policy.

Tax benefits: If you don't get a mortgage protection policy, loved ones may be able to take advantage of mortgage-related tax advantages, such as the mortgage interest deduction. If they can afford the mortgage comfortably, they may prefer this option to reduce their tax burden. A more flexible policy may allow them to keep more of the proceeds for other uses while the tax deduction mitigates some of the cost of interest.

Learn more about Aflac’s life insurance policies

Aflac doesn’t offer mortgage protection life insurance, but we do have term and whole life insurance policies with reasonable premiums and extensive coverage customized for your needs. Your loved ones can use the death benefit for almost anything, including paying off a mortgage. Speak with an agent today to find out which life insurance policy is best for you and get a quote.

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