There would always be an insurance policy in the documents that you have to sign before purchasing a new home. It's a benefit of the lender and not the borrower. It is called Private Mortgage Insurance, or PMI. It is what the borrower pays and the premium is paid at closing to insure that the lender gets paid by the insurance company. This is if and only if the borrower fails to pay for his mortgage payments.
However, What is the benefit of the borrower? What can it do for his family or legal heirs if he dies before his mortgage is paid in full. In PMI, it is a separate policy that a homeowner should arrange to purchase for himself. It is not a requirement at closing and it is one additional expense at a time when there are so many other dues that can be somewhat overwhelming.
The cost of Mortgage Life Insurance will add to the cost of buying a home, it is true. It costs approximately one-half to one percent of the loan amount each year, making it an excellent investment considering the risk involved. Death of a wage-earning spouse can be financially devastating at a time of great emotional loss as well, the worst possible time to face foreclosure and the loss of a home.
Mortgage Life Insurance pays the surviving spouse or other stated beneficiary an amount equal to the mortgage balance at the time of death. The payment is not based on the value of the home, but on the remaining mortgage balance only. This form of life insurance is not designed to provide continuing support for your family, but simply to provide money to pay off the mortgage balance.
Qualifying for Mortgage Life Insurance requires an application and a health exam, in many cases. Like other forms of life insurance there is an underwriting procedure to determine how much risk the insurance company is taking by insuring you. If both a husband and wife are earning income that contributes to the mortgage payment each month, both of them will be required to answer questions and to obtain a health exam, if required. In this case the Mortgage Life Insurance will cover both of their lives and pay out in the event either of them dies.
Mortgage Life Insurance is an important consideration for anyone who is buying a home and providing for a spouse and a family as well.
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