Before going into the details as to whether or not one should go for mortgage life insurance, let's check out what it is all about. Well, to define it in simple words, mortgage protection life insurance is a policy which will help your heirs to pay off the home loan after your death (if it's not fully paid off).
Once you've taken a mortgage, you will get an offer to buy an insurance policy from your lender or an insurance company who is associated with him. In my opinion, it doesn't make much sense to go for mortgage life insurance. Here are some of the reasons why you shouldn't go for it:
Insurance may not cover everything - Your mortgage life insurance may only help your heirs to pay off the loan if you die from an accident. If you die from illness, it may not help your heirs in paying off the home loan. Thus, your family will face hardship in saving the property from the lender.
Life insurance for home loan insures the lender - Though you pay the insurance premiums every month, your family members will not be able to see the insurance proceeds in case of your death. Thus, the insurance proceeds will bypass your loved ones. The bank will be getting their dues on time and the only positive thing will be the fact that your estate will not be liable to pay off the dues.
Death benefits may decline - In some cases, it has been noticed that the benefits of the insurance policy would get reduced with the declining of your loan balance. With time, the death benefit keeps on reducing.
New insurance underwriting when you refinance - If you plan to refinance your home loan to get a better interest rate, be prepared for a new insurance underwriting. If you want the mortgage life insurance option, you will have to fill out the medical questionnaire and go through the underwriting process again. Your request for a this kind of life insurance can be declined if your insurability has been affected for some reason.