Buying a house and talking out a mortgage can be a life changing event. The commitment to pay back the cost of a home over a period of thirty years can be daunting. No one is psychic enough to know what will happen during the intervening years until the mortgage is paid back in full. Whether the purchasers will even survive for the next thirty years is an unknown. With all the uncertainties come risks.
Managing the risks of a mortgage can be planned. There are ways to minimize the risk of nonpayment by insuring payment in the event of certain occurrences. One such management tool is the mortgage life insurance policy. These policies can take many forms. Not every option is the best for every mortgagee, finding what is right can be tricky.
Most mortgages come with the option of mortgage life insurance. The borrowing party is given the option of taking out some form of term insurance for the life of the mortgage. The insurance will cover the balance of the mortgage should the home buyer suffer an untimely death. The estate of the homeowner is not faced with a decision of selling or losing the property because the mortgage cannot be paid. There are some policies that will return all premiums paid by the borrower if the mortgage is paid in full. These fairly new term policies allow a person who never used the insurance to recoup the premiums tax free when the mortgage is paid. There are other forms of policies which will allow an early pay off of the mortgage.
Using a whole life insurance policy to accrue funds in an account and then either cashing in the policy or borrowing against its value to pay off an outstanding mortgage balance is advisable in some circumstances. Whole life policies not only provide a death benefit, but provide an investment account where cash value of the policy increases over time. By taking a policy with a minimum death benefit to cover the mortgage and an increasing cash value a home buyer gets the protection of mortgage life insurance and the ability to pay off the mortgage early through the increasing cash value of the policy. Policies of this type will carry higher premiums and should be researched before a purchase is made. There is some risk involved and the cost will be in addition to the monthly mortgage payments.