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What Happens To My Mortgage Protection Insurance If I Sell My House?

When you purchase a home, you are likely to get offers for mortgage protection insurance, a type of life insurance that will pay off your mortgage in case you die or become disabled. This provides protection for your family if you are no longer there or no longer able to work to pay the mortgage. If you die, with some policies, the proceeds go directly to your lender to pay off the balance on your mortgage in full. Your family will still have a place to live, provided they can pay the insurance and taxes on your home.

However, most mortgage protection insurance policies today are designed to pay out the full amount of your original mortgage, regardless of the outstanding balance. With this type of policy, in the case of your death, your mortgage would be paid off, and your beneficiaries would get the remainder.

But what if you buy mortgage protection insurance at the time you purchase your home, then later decide to sell the home? What happens to your mortgage protection insurance policy?

Benefits Decrease With Some Mortgage Protection Insurance

Some mortgage protection insurance policies have decreasing benefits. The payout decreases as the balance on your mortgage decreases, although your payments remain the same. If you were to die while you still owned the home, the payout would equal the balance on your mortgage, whether you had been paying on it for two years or twenty years, and all of the benefits would go directly to your lender.

However, with a mortgage protection insurance policy designed to pay out the full amount of your original mortgage, the portion of the payout your family gets to keep will decrease as you pay down the mortgage. The remaining balance can be spent on anything your beneficiaries choose.

When You Sell Your Home, You Pay Off Your Mortgage Early

If you decided to sell your home, for instance, to move to another city, your lender would be paid off first from the proceeds of the sale, bringing your balance on the mortgage down to zero. When you have mortgage protection insurance and pay off your mortgage early, you can keep the coverage until the term of your policy expires. Some insurers will allow you to convert your mortgage protection insurance into a life insurance policy.

Pros & Cons Of Mortgage Protection Insurance

There are advantages and disadvantages to purchasing mortgage protection insurance. Our friendly agent will be happy to go over your options with you.

The number one advantage of this type of insurance is that your mortgage is covered in full in case you die or become disabled or lose your job. If you are injured, or become seriously ill, or get laid off, your policy may continue to cover your mortgage payments until you are back on your feet financially. Also, there is usually no medical exam required to purchase this type of insurance.

One disadvantage is that your death benefit with mortgage protection insurance is likely to be capped at your original mortgage amount. Term life insurance and whole life insurance are both alternatives to mortgage protection insurance. Both types of policies offer better death benefits. Term life insurance is available at lower rates, and whole life insurance has a cash value.