Insurance That Will Pay the Mortgage if a Spouse Dies

by Philippe Lanctot

Few things can harm your family finances more than the death of a spouse. Your family has to deal with a loss of income as well as the added financial pressures of child care and funeral expenses. This could stretch your budget to the point of threatening your most important assets, including your ability to pay off your mortgage. A number of life insurance programs exist that will pay a lump sum at death, some or all of which could be used to pay off your mortgage.

Mortgage Life Insurance

Some life insurance products exist for the sole purpose of paying off your mortgage balance on the death of a mortgage owner. The amount of coverage decreases over time in the same manner as your mortgage balance would decrease. Although the premiums remain level, they might be more affordable than a level term life policy due to the decreasing nature of the coverage. Give careful consideration to the fact that the insurance amount decreases and evaluate whether the cost of a level term policy makes more sense.

Term Life Insurance

Term life insurance covers you for a specific amount of time, such as 20 years, which might be sufficient to protect you while you pay off your mortgage. The premiums are generally more affordable than a whole life policy because the coverage can terminate before you have a chance to collect. The policy, however, might offer a conversion option to permanent coverage without requiring evidence of health, should you wish to retain the coverage for other long-term estate planning needs.

Whole Life Insurance

Although whole life insurance premiums are generally more expensive than those for a term life insurance policy, if you have combined insurance needs that include your mortgage and other estate planning issues, the lifetime protection aspect of a whole life product can lend itself to meeting both your short- and long-term needs. During your working lifetime the whole life policy can work as mortgage protection coverage, but during retirement your policy shifts to providing estate planning funding. Alternately, cash surrender values might be used as a source of additional retirement income.

Single Life or First-to-Die

Most insurance products are able to provide coverage on your life or the life of your spouse alone, or alternatively you may consider a first-to-die policy that would pay a benefit upon the death or either you or your spouse. A first-to-die policy can be useful when your only consideration is paying off the mortgage upon either death and you do not wish to retain any insurance once you have paid off the mortgage.

About the Author

Philippe Lanctot started writing for business trade publications in 1990. He has contributed copy for the "Canadian Insurance Journal" and has been the co-author of text for life insurance company marketing guides. He holds a Bachelor of Science in mathematics from the University of Montreal with a minor in English.

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