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

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.

*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.

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