The answer that question is a resounding no! Mortgage life insurance is designed to protect the bank that wrote your mortgage, not you and your family! So what is a better option?
Sure your mortgage life insurance will pay off the balance of your loan if you were to die prematurely and your family might even retain ownership, but depending on circumstances that is not a guarantee.
Another big downside to mortgage life insurance policy is the fact that your premium stays the same throughout the life of your loan, even though the balance decreases as you make your payments. In other words, it has a decreasing benefit with level premiums. Therefore, at the end of your loan you’re paying a huge premium to cover a small loan payoff.
A much better idea to protect your family in case of an early death, when your mortgage is still in force, is personal life insurance. With personal life insurance you can set your policy amount. This will cover your family not only to pay off the house but also to take care of other expenses such as funeral and burial, outstanding bills that your income covered, and other circumstances that might arise such as medical bills or lawsuits.
The type of personal insurance policy that you choose depends on your current situation and age, as well as your goals. Your insurance agent will explain all the options in detail to you, but here’s an idea of what to look for.
If you simply wish to cover your mortgage pay off your home in case of an early death, consider a term life insurance policy. Term insurance can be set for the life of loan and you can choose a term insurance policy, instead of mortgage life insurance, that has a reducing premium feature or even one that returns your premium payments to you at the end of the policy. This means that once your mortgage is paid off, you’ll get back all the money that you paid in to insurance! So be sure to look for a term life insurance policy that has a decreasing benefit and decreasing premium feature.
If you choose to go with a more comprehensive life insurance policy such as whole life, instead of mortgage life insurance, make sure your insurance agent explains it to you in detail, and ask lots of questions. Many times a whole life insurance policy will provide more coverage than needed and the premiums are much higher. The reason for this is the whole life policy does just that, it covers you for your whole life and accrues value to be paid to your heirs upon your death. Whereas a term life insurance policy is only in force for a specified term and does not build value. Be very careful if your agent is trying to sell you a variable whole life insurance policy as these are investment vehicles tied to the stock market, and contain risk.
So be ready when it comes to loan signing your lender will try to push mortgage life insurance on you and just because the premiums are cheap does not make it a good idea. It will end up being a big waste of money.