Buying a home is one of the biggest financial commitments most people will ever make. Naturally, homeowners want to know their family’s home and financial wellbeing will be protected if something unexpected happens to them. Check out our guide below!
Questions? Reach out to one of our knowledgeable insurance agents. We’re eager to set you up with the right coverage and rate!
A common question that comes up is whether mortgage insurance and life insurance are duplicative. While it may sound like they provide similar coverage, they work very differently, and one will offer far more direct value to a homeowner’s loved ones.
What is Mortgage Insurance?
Mortgage Insurance (PMI) is often required when a homebuyer makes a down payment of less than 20% of the purchase price. Its purpose is simple: it protects the lender in case the homebuyer doesn’t make their mortgage payments.
Here’s how it works:
- Homeowners pay a monthly premium.
- That premium stays the same for the life of the policy.
- But the benefit—paying off the mortgage—decreases as the loan balance goes down.
In short, mortgage insurance doesn’t protect your family. It protects the owner of your loan.
What is Life Insurance?
Instead of protecting the lender, life insurance protects your beneficiaries directly.
With a life insurance policy:
- The death benefit stays the same throughout the life of the policy.
- Proceeds are paid directly to your beneficiary, not the bank.
- Your family can choose how to use the funds: pay off the mortgage, cover living expenses, or invest in the future.
Some policies, such as whole life or variable life, also build equity (cash value) over time.
The Case for Life Insurance Over Mortgage Insurance
For many homeowners, life insurance provides a stronger layer of protection:
- Flexibility: Instead of being locked into paying off the mortgage, your family decides how best to use the funds.
- Stable Coverage: Unlike mortgage insurance, which decreases as the loan shrinks, the benefit remains the same.
- Future Benefits: Many term life policies can be converted into whole life policies later.
- Cost Advantage: Locking in a term life policy when young and healthy helps you avoid higher premiums if health changes in the future.
Which One is Right for You?
Mortgage insurance may satisfy lender requirements, but it doesn’t provide real financial security for your family. Life insurance, on the other hand, offers lasting protection and flexibility that grows with your needs.
When you buy a home, consider life insurance as part of your strategy to protect your family’s future, not just your lender investment. At Cornerstone Insurance Agency LLC, we can walk you through the differences and help you choose the right coverage for your unique situation.