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Does it make sense to try and get mortage insurance (and potentially other long term debt insurances) or just increase life insurance to cover the mortage if you die? The goal being to not encumber inheritances with debt.

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Higher life insurance.

Mortgage insurance is a very expensive decreasing term life insurance policy, that pays the Lender. You can likely increase your limits for less cost, AND, the payout doesn't depreciate every month, AND, your beneficiary can use the money any way they want - to buy food, or pay property taxes, or whatever.

  • Mortgage insurance is a very expensive decreasing-value term life insurance policy that pays off the mortgage (the Lender is the beneficiary) if you buy the policy from the Lender (or if the Lender insists on you paying the premium for such a policy because your down-payment was less than the standard down-payment required by the Lender: this insurance is usually referred to as PMI). It is possible for the home-owner to get the same coverage for a lot less from other insurance companies. (Same rule as for car loans; they are cheaper from your bank or credit-union than from the car dealer). – Dilip Sarwate Feb 5 '15 at 14:39
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The issue is should you get one large policy or several smaller policies.

Multiple polices have flexibility becasue if the need goes away you can drop the policy.

The problem with multiple small policies is that there is overhead that you pay for multiple times. Assume that you want 100K coverage and are age x. That policy will cost you a certain amount based on a base amount plus a percentage of the coverage. The percentage is based on age, sex, smoking, health. If you double the coverage the price doesn't double becasue the base amount is constant. This base amount covers the cost of setting up your policy and maintaining the records and billing.

Keep in mind that the coverage you are asking about is not the mortgage insurance the lender makes you purchase when you have a small down payment. You are asking about a policy to cover your debts and still provide money for survivors.

Go with your current agent company and ask them to run the numbers: new additional policy, increasing amount of current policy. Go with what meets your needs. Buying a house is one of those life events where you should review your insurance and retirement needs, and adjust accordingly.

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Most likely, if you qualify health wise, going with a traidional term life policy would be wise. You can take out coverage, to meet the loan obligations. Many companies allow you to reduce your life insurance benefit, over time, and thus your premium payment would decline as your mortgage balance declines. Rarely will a mortage insurance policy be in your best intersest

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