Buying a home: know the difference between mortgage life insurance and individual life insurance

(ARA) - For many new homeowners, it can be very confusing to decide whether you should buy an individual insurance policy from a reputable life insurance company to protect your new home from the unexpected, or if you should purchase a mortgage insurance policy through your lender.

Before you make this important decision, you need to understand the restrictions of mortgage life insurance policies as well as the benefits of an individual life insurance policy such as term life insurance, so that you can choose the option that is best for you and your family.

Mortgage life insurance

Mortgage insurance is a form of life insurance coverage provided through your bank or mortgage company. The policy is structured to pay off your mortgage balance, if something were to happen to you during the life of your mortgage. Mortgage insurance policies may be reasonably priced, but they are quite restrictive. The death benefit from a mortgage insurance policy is paid directly to your mortgage company, and the proceeds cannot be used to pay any other expenses that your family might have after your death.

Term life insurance

Term insurance is an insurance policy that pays out a death benefit to your beneficiaries, if you were to pass away during the term of the policy you choose (10, 15, 20, 25 or 30 years are typical terms). Term insurance is traditionally reasonably priced because there are no cash values accumulating within the policy, as is the case with other types of life insurance.

The beneficiary of a term insurance policy can be anyone you want (typically your spouse). In addition, if something happened to you during the term of the policy and the death benefit is paid out, your beneficiary can use the funds however he or she sees fit. You can also buy a policy with coverage that exceeds the balance on your mortgage (unlike mortgage insurance) so that your heirs can fund college tuition and other living expenses, as well as pay off your mortgage balance.

Affordable term insurance policies often include special additional insurance benefits called riders, also not found on mortgage insurance policies. These riders can add death benefit coverage for other family members or pay your annual policy premiums, in the event of a disability.

If you decide to go the route of individual term life insurance, be sure you research the ratings of the insurance companies you are considering. Because you are buying into a long-term promise with your insurance company, you want to be sure they are financially strong and have a good reputation for paying their claims. The A.M. Best Web site (www.ambest.com) is very helpful on this subject.

If you wish to get a quick term life insurance quote from a company rated A+ (superior) by A. M. Best, call (888) GET-SBLI or visit www.sbli.com.

SBLI and The No Nonsense Life Insurance Company are registered trademarks of The Savings Bank Life Insurance Company of Massachusetts, which is no way affiliated with SBLI USA Mutual Life Insurance Company, Inc. NAIC # 70435. SBLI products may not be available in all states.

Courtesy of ARAcontent