02. Mortgage Payoff Insurance

Because mortgage lenders require a property/casualty policy to name them as a co-payee, this need is covered immediately. Fire Prevention Council and Institute of Life Insurance statistics reveal that death of the owner is fourteen times more likely to occur than a fire.

The traditional declining term insurance has a death benefit which reduces at a rate similar to the mortgage balance. Proceeds are normally paid directly to the lender. If coverage is through a lender group, then it terminates or must be converted at higher rates if the home is sold or the mortgage is prepaid. Since declining term insurance has no cash value, it may be discontinued without significant loss, provided good health exists.

Using whole life or Universal Life to insure the mortgage provides a level death benefit. At death, the mortgage may be paid or retained, based on plans for sale or the attractiveness of the interest rate. The proceeds
are always greater than the mortgage balance, with the excess paid to the family.

The contract values grow into a reserve fund to be used during disability, layoff of retirement. After five years, these values will normally sustain payments for over a year of disability. The most important feature is
using the policy values for early mortgage payoff, thus saving years of interest and principal payments. Many persons have mortgages extending beyond their retirement, and an early payoff would assure a comfortable
retirement.

The outlay for this type of insurance is greater than for the declining term. With term, there would be only 20 or 30 years of canceled checks; with whole life or universal life, one would enjoy freedom from years of mortgage payments. All mortgages must be paid off someday -- universal and whole life just makes that day more certain, and much sooner.

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