What is Mortgage Protection Insurance? Do I need it?

If you buy a house, you will get inundated with all kinds of offers for mortgage protection insurance. We’re talking several a day for a couple weeks! It sounds like a good idea — you just took out a massive loan (let’s say $200,000), and this protection promised that if you die your mortgage will be paid off, thereby allowing your family to stay in the house without the pressure of payments.
And, you know what? That is a pretty good idea, but it’s not usually executed in the way we’d suggest. All these companies are trying to sell you is a “decreasing term life insurance” policy based on the value of your mortgage. In other words, to protect your $200,000 mortgage, they’re going to sell you a $200,000 term life insurance plan that would pay $200,000 if you died. But this “decreasing” setup means the payout amount will decrease over time (because your mortgage is decreasing over time). So if you die in 10 years, your family would get less money than they would if you were to die in year 2.
Make sense?
It’s not a terrible idea, and because the value of the policy decreases, the premiums are pretty low (though they stay the same as the value decreases!). But a “level” term life insurance plan is not much more expensive (a negligible amount, usually). So, in our example, we’d suggest getting something like $250,000 in level term life insurance, meaning the payout amount (and the premium) is the same every year. If you’ve already paid down a bunch on your mortgage, there’s no question that your family could use the extra money for other important things (like college, other bills, etc.).
If you’ve recently bought a house, throw out the junk mail and let us give you some easy, no-obligation quotes on term life insurance coverage today.