If you have recently bought or refinanced a home, you may have noticed a piling up of offers in your mailbox from your lender about putting a mortgage life insurance policy in place. As you read the marketing brochure (or multiple brochures), you can become easily convinced that putting one of these insurance policies in place is the best thing to do for you, your home and your family. After all, you insure your cars, life and home, why wouldn’t you insure your mortgage too?

What is Mortgage Life Insurance?

First, let’s get a complete understanding as to what a mortgage life insurance policy is and what it covers if you do choose to put one in place. As a homeowner, if you establish a mortgage life insurance policy and you pass away, the policy pays off your mortgage balance, which alleviates your heirs or family members from having to continue to make mortgage payments. Instead, the mortgage life insurance policy pays off the remaining balance on the mortgage at the time of your death and your heirs now own the home free and clear.

Mortgage life insurance works similar to other insurance policies in that you establish a policy amount and pay premiums on the policy. The trigger for the policy is the death of the homeowner on the property that the policy covers.

At this point, you are probably thinking that mortgage life insurance is at least something you should consider. As you consider it as an insurance option, first learn the advantages and disadvantages that this type of insurance policy offers.

Advantages of  a Mortgage Life Insurance Policy

Insurance—be it on our cars, our lives or our home mortgage—insure an event that may or may not occur in the future. In a situation where the event does happen, the insurance policy triggers, which is an advantage to the policyholder or beneficiaries of the policy.

Some of the advantages of a mortgage life insurance policy include:

• Alleviates the monetary pressure of making mortgage payments for your heirs
• Relieves stress because you know the mortgage will be paid off if something happens to you

Disadvantages of a Mortgage Life Insurance Policy

With the good of establishing a mortgage life insurance policy comes some of the disadvantages.

Some of the primary disadvantages of a mortgage life insurance policy include:

• High cost premium payments (can be thousands of dollars per year)
• Mortgage life insurance policies are not, according to most financial experts, as cost effective as establishing a large enough life insurance policy that includes the amount of the mortgage as well
• Loss on the value of the policy as the mortgage balance decreases. For example, if you put a mortgage life insurance policy in place for a $200,000 mortgage, but the mortgage balance when you pass away is only $50,000, then the mortgage insurance policy only pays off the current $50,000 balance.

Weighing the pros and cons of any type of insurance policy is an important factor before choosing to put a policy in place. Mortgage life insurance is no exception to this rule. You have to weigh the advantages and disadvantages of putting a mortgage life insurance policy in place on your home as it pertains to your own personal financial situation, and your emotional feeling for choosing this option.

You should also consult your financial adviser or tax expert to get a second opinion. Mortgage life insurance policies are not the right fit for everyone. These types of insurance policies may, however be highly beneficial to homeowners that have specific personal and financial situations. Weigh your own pros and cons and then discuss all of this with your advisers. This is the only way you can make an educated decision as to whether a mortgage life insurance policy is your friend or your foe.