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Mailbag Monday: Life Insurance or Mortgage Insurance?

iStock_000016108788SmallI am 63 years old with $250,000 in term life insurance. There are two policies; the first one for $100,000 will expire this month, leaving me with $150,000. I am comfortable with that amount, but I am thinking I might like $50,000 more in coverage. Would mortgage insurance be a better option for that additional coverage?

— Gordy

Hi Gordy, thanks for writing. Generally speaking, you want your insurance to be broad, meaning that it covers as much as possible — a range of things rather than one specific item or need. Mortgage insurance will pay off your mortgage if you pass away, and that’s it.

Term life policies, on the other hand, like the ones you have, are there to pay out for anything your family needs after you die. That’s generally a better deal, overall — mortgage insurance protects the mortgage lender almost as much as it protects you. Your spouse, if you have one, may want to continue paying off the mortgage slowly — especially with today’s low interest rates — and use a life insurance settlement for other day-to-day expenses. With a term life policy, she’ll have the flexibility to do that. It’s difficult to predict how a beneficiary is going to need to use the money, so a broad policy that allows for many options is often the best choice.

I think it’s also worth pointing out here that you’re smart to review your life insurance needs. Based on your age, I’m going to guess that you’re not yet retired, but you may be stepping back from the workforce shortly. Everyone should reevaluate their insurance coverage as they enter retirement, because when you’re no longer earning an income, you may no longer need life insurance. I would re-evaluate your needs with a life insurance calculator like the one at lifehappens.org. And note: This goes beyond life insurance. You may be driving less in retirement, which could lead to a reduction in your auto insurance premiums. Staying home during the day could get you a deal on homeowners insurance. Call around to all of your providers.


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