Mortgage loan companies usually offer their clients the option to buy mortgage decreasing term life insurance which guarantees that your mortgage will be paid off in the event of your premature death.

Although the idea behind it sounds good, purchasing mortgage term life insurance is usually not recommended, unless you are in extremely poor health and cannot qualify for life insurance coverage elsewhere. 

Who will benefit from mortgage term life insurance?

Mortgage term life insurance can be the only chance of obtaining coverage for people who are not eligible to buy individual life insurance due to poor health, obesity, smoking habits, dangerous occupation, etc.

Purchasing a mortgage term life policy guarantees that the family of the insured will be financially secure to meet all the outstanding debts in the event of insured's death. And the good news for all those who cannot otherwise qualify for regular life insurance is that they would not be asked to provide evidence of insurability.

These plans offered through your lender are usually guaranteed approval, which means higher rates than buying your own individual term life insurance policy which you could name your family as beneficiary.

Arguments against mortgage term life insurance

You should only choose mortgage term life insurance if you cannot meet the requirements for standard life insurance. Remember that the healthier and the younger you are, the lower the term life premiums will be. Since mortgage term life insurance does not ask you for evidence of your health condition, premiums are typically higher than if you were to buy your own individual term life insurance coverage privately, rather than through your lender.

With mortgage term life insurance, the mortgage company, and not your family, is the beneficiary. Thus, your family does not have a choice of deciding what to spend the death benefit on. When you purchase a mortgage policy, you make a commitment that the face value will go towards the mortgage in the event of your death.

It is advisable to choose a regular term life insurance policy instead, as it will give your family the freedom to decide what to spend the proceeds on.