Mortgage life insurance vs term: the math

When you sign a mortgage, the lender offers to insure it — check a box and the balance gets paid off if you die. It's easy, and for most people it's the more expensive choice, for reasons that never make it onto the sign-up form.

The benefit shrinks; the premium doesn't

Mortgage life insurance pays off your remaining balance, which falls every month as you pay down the mortgage. But the premium is level. So every year you pay the same money for less coverage — the effective cost per dollar of protection rises the whole time.

It pays the bank, not your family

Personal term pays your named beneficiary, who can pay the mortgage, keep the cash, or both. Mortgage insurance pays the lender, full stop.

Some of it is underwritten after you die

With certain creditor policies, whether you actually qualified is assessed at claim time — "post-claim underwriting" — so your family can discover the coverage doesn't pay at the worst possible moment. Personal term is underwritten up front, when you apply.

It's not portable

Switch lenders or homes and the coverage often has to be re-bought, at your older age and current health. Term moves with you.

There's one honest exception: if a health issue means you can't qualify for personal term, guaranteed-issue creditor insurance can be the coverage you can otherwise not get. For everyone else, price a personal term policy, name your own beneficiary, and skip the box. Our Mortgage Life vs Term tool charts the rising cost-per-dollar so you can see the gap in your own numbers.