The short answer
This guide answers the most common questions about lender mortgage life insurance vs term life.
Lenders sometimes offer mortgage life insurance right when you are signing a stack of papers. It is worth pausing to compare it with term life you own.
The two can look similar on paper but work very differently when your family needs them.
Part of our complete guide: Mortgage Protection Insurance: The Complete Guide.
Quick answer
Lender policies often name the lender as beneficiary and shrink with the loan. A term policy you own pays your family and usually stays level. Individual coverage follows you if you refinance or move.
MarketView Agency is an independent insurance agency (National Producer Number 18345705).
On this page
- Lender mortgage life insurance vs term life: why a lender's policy is different
- Does your policy follow you to a new home?
- Should the coverage shrink with your loan?
- What happens after you apply: underwriting
- Why compare with an independent agent
- Is mortgage protection right for you?
- Frequently asked questions
Lender mortgage life insurance vs term life: why a lender's policy is different
Some lenders and banks offer mortgage life insurance at closing or by mail. It can be convenient, but read the details.
| Feature | Lender mortgage life | Individual term policy |
|---|---|---|
| Beneficiary | Often the lender | Your family |
| Benefit over time | Often shrinks with the loan | Usually level |
| If you refinance or move | Often ends | Stays with you |
| Underwriting | Often limited questions | Full or simplified, varies |
| Shopping | One option | Compare several carriers |
An individual term policy you own is usually more flexible. You choose the beneficiary, the benefit does not drop with the loan, and the coverage follows you if you sell or refinance.
We cover this in detail in How Does Mortgage Protection Insurance Work?. We cover this in detail in Mortgage Protection Insurance Cost: What Sets Your Price.
Does your policy follow you to a new home?
If your mortgage protection is a term life policy you own, refinancing or moving does not change it. The policy is tied to you, not to the loan or the house.
- Refinance: your policy stays in force. If the new loan is larger, you can add a second policy for the difference.
- Sell and buy again: the policy keeps going and can protect the new mortgage.
- Pay off early: keep the policy for your family, or reduce the amount if your carrier allows it.
Lender-sold mortgage life insurance is different. It often ends when the original loan is paid off or refinanced. Check before you refinance.
Compare rates from several carriers in about two minutes. Free, no obligation.
Should the coverage shrink with your loan?
Decreasing term follows your loan: as the balance goes down, so does the benefit. Level term keeps the full amount for the whole term.
Level coverage often costs only a little more, and it gives your family room for other bills, such as daily living costs or school. Decreasing coverage can work if your only goal is the loan balance and you already have other life insurance for everything else.
What happens after you apply: underwriting
Every life insurance application goes through underwriting. That is the insurer's review of who you are, how healthy you are and how much risk the policy carries. The result is your rate class, which sets your price.
- Your answers. Health history, medications, tobacco or nicotine use, family history, travel and hobbies.
- Records. Prescription history, a shared database of prior insurance applications, and often your driving record.
- Sometimes an exam. A short visit from a paramedical examiner to check height, weight, blood pressure and lab samples.
- Sometimes medical records. For larger amounts or certain conditions, the insurer may ask your doctor's office for notes.
Insurers do not all weigh these things the same way. One carrier may treat a managed condition, like controlled blood pressure, more favorably than another. That is a big reason to compare several carriers rather than accept the first offer.
Be complete and honest on the application. Policies have a contestability period, usually the first two years, when the insurer can review a claim against what you said when you applied.
Why compare with an independent agent
A captive agent works for one insurance company and can only offer its policies. An independent agent is appointed with several carriers and can compare them side by side.
That matters because carriers price the same person differently. One may be friendlier to a past health condition, another to tobacco users, another to larger coverage amounts. Comparing several gives you a better chance at a fair price.
You do not pay extra to use an independent agent. Agents are paid by the carrier you choose, and the premium is the same as buying from that carrier directly.
How to get covered in 3 steps
- Check your rate. Pick your state and answer a few quick questions about the coverage you want.
- Compare carriers. A licensed agent compares mortgage protection options from several insurers and explains the trade-offs.
- Apply and get covered. Many applications take one phone call. Coverage starts once the policy is issued and the first premium is paid.
Is mortgage protection right for you?
Often a good fit
- a mortgage that depends on your income, kids at home, a partner who could not cover the payment alone.
- new homeowners who want to lock in today's age.
Maybe not the right fit
- your current coverage already pays off the home and covers living costs.
- the home is nearly paid off and savings could finish it.