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Term Life vs. Mortgage Life Insurance: Which Comes Out Ahead?

By Jessica Sillers Jul 17, 2023

In this article

What Is Term Life Insurance?

What Is Mortgage Life Insurance?

Do Homeowners Need Life Insurance?

Term vs. Mortgage Life Insurance, Side by Side

How Much Will It Cost?

The Bottom Line

Becoming a homeowner is a milestone to celebrate. Your home is the setting for so many meaningful family memories, so it can feel especially important to put financial protections in place to keep your family in a home they love, no matter what. 

When you buy a home, you may see information about mortgage life insurance, but is that the best way to create a solid financial foundation? The short answer—term life insurance is better, at least most of the time. Here’s how to tell if that’s true for you.

What Is Term Life Insurance?

Term life insurance offers coverage for a specific length of time that you choose. If you pass away during the term, the beneficiary you choose gets the death benefit payout, which they can use for any expenses. If you outlive the term policy length, your coverage expires and you’ll have to shop for another policy if you still want coverage. 

Term life insurance offers flexibility over how much coverage you have and for how long. Most term policies have a fixed benefit and fixed premiums, meaning your payment and the benefit stay the same from day 1 of your policy all the way to the end. So, if you want to make sure that your loved ones could pay off the mortgage in your absence, you might simply choose a term that reflects your mortgage duration, such as 30 years.

What Is Mortgage Life Insurance?

Mortgage life insurance, also known as mortgage protection insurance, is a kind of term life insurance policy that specifically covers your mortgage if you pass away. Some policies also cover a limited number of mortgage payments if you become disabled or lose your job.

In most cases, mortgage life insurance is set up with a decreasing benefit. It’s structured to pay off your remaining mortgage balance, so the benefit goes down over the years as you pay off your house. Your premiums, however, stay fixed at the same rate.

The mortgage life insurance benefit is only usable for paying the outstanding mortgage balance if you pass away, not other expenses. That means that your loved ones wouldn’t have to worry about the mortgage in your absence, but your life insurance benefit wouldn’t be able to help with other things such as your final expenses, your kids’ college tuition, or anything else. 

One advantage is that most mortgage life policies skip the medical underwriting step that term life policies include.

Like other term policies, mortgage life insurance naturally expires (in this case, at the end of your mortgage repayment period). You’ll need to shop elsewhere if you want coverage after that.

Do Homeowners Need Life Insurance?

When you purchase a home, you aren’t legally required to have homeowner’s insurance, but most mortgage lenders require it to work with you. Depending on your home loan, you may also be required to buy additional types of insurance like private mortgage insurance (PMI), which protects the lender rather than you.

A lender won’t insist on you having a term life or mortgage insurance policy. That said, life insurance may be a personal need for you if you want to make sure your family can stay in your home even if you pass away. After all, if they can’t keep up with the mortgage payments without you, they may have to sell the house. 

Mortgage lenders don’t always offer a lot of leeway on payments. If you’re 30 days late on a mortgage payment, you’re in default, and foreclosure processes generally start three to six months after the first missed payment. There are some hardship programs available, either from certain government agencies or from individual lenders, but you may not feel sure that your family would qualify or be able to get enough help to avoid losing their home. An insurance benefit means your loved ones could have financial resources on hand to stay in their home.

Term vs. Mortgage Life Insurance, Side by Side

Term and mortgage life insurance are both tools you can use to help protect your family home, but comparing them side by side can help you assess which offers the best value for you.

Term Life Insurance Mortgage Protection Insurance
Coverage amount Level Decreasing
Premium structure Level Level
Term length Choose options such as 10, 20 or 30 years Corresponds with your mortgage
Underwriting Usually involves full medical underwriting or health questionnaire No medical exam required
Events covered Death by almost any cause* Death (some policies may only cover accidental death, so read coverage details closely); some policies offer options for disability or job loss
Beneficiary Your choice Mortgage lender
Death benefit usage No limitations Outstanding mortgage only

*In the first few years of a policy, death by suicide is usually not covered.

While mortgage life insurance offers the advantage of not requiring a medical exam, you will generally have to pay higher premiums. If you’re just trying to avoid a health exam, a better option for most healthy people would be to look into a no-exam term life insurance policy, which can waive the medical exam in favor of a health questionnaire for qualifying applicants and still offer more affordable coverage. 

If you’re not in great health and can qualify for mortgage life insurance, it might come out ahead of options like guaranteed issue life insurance in terms of premiums and coverage amount because many guaranteed life policies cap the benefit around $25,000, which likely isn’t enough to cover a mortgage balance. It’s always important to take the time to consider any health questions carefully, because misrepresenting your health (even if the question had confusing wording) can mean the company won’t actually pay a claim.

Term life also has the significant advantage of letting your beneficiary use the benefit for whatever they need, instead of going directly to the mortgage lender.

How Much Will It Cost?

Mortgage life insurance doesn’t require medical underwriting, so you can generally expect the insurer to charge higher premiums than they would for a healthy person buying a term life policy. One estimate we found quoted about $60 per month for a 30-year-old seeking 30 years of coverage for a $500,000 mortgage as of February 2023.

Fabric’s estimated quote (as of February 2023) for a 30-year, $500,000 policy for a 30-year-old man in excellent health is $31.27 per month. If we choose “good” rather than “excellent” health, we still come out ahead, at $42.31 per month.

It’s true that health factors can have an impact on your life insurance premiums. If you have certain health conditions, you may be able to find a comparable or lower monthly premium with mortgage life insurance than term life. In many cases, though, if you’re in good health, you can find more affordable coverage with a term life policy. And even if a mortgage life policy is cheaper, keep in mind that the benefit decreases and basically goes straight to the mortgage lender, rather than to your loved ones. 

The Bottom Line

Protecting your home is an important part of building a secure family life, whether that means fixing leaky plumbing now or getting insurance coverage against a possible future outcome. If your health is in so-so condition or makes you concerned about qualifying for term life coverage, mortgage life insurance may be a relatively affordable option to consider. But term life’s affordable rates, steady benefits, and freedom to use that financial protection wherever it’s needed make it better value for most people.

Fabric exists to help young families master their money. Our articles abide by strict editorial standards.

Fabric by Gerber Life exists to help young families master their money. Our articles abide by strict editorial standards.

Information provided is general and educational in nature and is not intended to be, and should not be construed as, financial, legal, or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. We make no warranties with regard to the information or results obtained by its use, and disclaim any liability arising out of your use of, or reliance on, the information.

Fabric by Gerber Life offers a mobile experience for people on-the-go who want an easy and fast way to purchase life insurance.

Written by

Jessica Sillers

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© 2023 Gerber Life Agency, LLC

Term Life Insurance Policy Series ICC22 2205-4004 WSA and Accelerated Death Benefit Rider policy series ICC22 2205-2623 WSA (and state variations where applicable) issued by Western-Southern Life Assurance Company, Cincinnati, OH which operates in DC and all states except NY, and distributed by Gerber Life Agency, LLC using Fabric Technologies. Gerber Life Agency, LLC is an affiliate of Gerber Life Insurance Company (est. 1967). All are members of Western & Southern Financial Group (Western & Southern). Issuance of coverage for Term Life Insurance is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Product provisions, availability, definitions and benefits may vary by state. Payment of benefits under the life insurance policy is the obligation of, and is guaranteed by, the issuing company. Guarantees are based on the claims-paying ability of the issuer. Products are backed by the full financial strength of the issuing company.

All sample pricing is based on a 30-year old F in Excellent health for the coverage amount shown and a 10-year term policy, unless otherwise stated. Gerber Life Agency, LLC (GLA) is an insurance agency licensed to sell life insurance products. GLA will receive compensation from Western-Southern Life Assurance Company for such sales. The NAIC Company Code for Western-Southern Life Assurance Company is 92622.

Western-Southern Life Assurance Company's A+ Superior A.M. Best Rating: Superior ability to meet ongoing insurance obligations (second highest of 13 ratings; rating held since June 2009). Ratings are subject to change from time to time. The ratings shown here are correct as of 09/03/2022. For more information about a particular rating or rating agency, please visit the website of the relevant agency.

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