"I Keep Receiving Letters from My Mortgage Company Offering Insurance That Will Pay off My Mortgage If I Die. Do I Need This Type of Insurance, or Is My Life Insurance Policy Enough?"

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Each week, Second Opinion asks two real-estate professionals one of your questions. Read what they have to say, right here.

WHEN NOT TO BUY LIFE POLICY

NAME: Rudi Miller

TITLE: Life/Health Representative, Jack Martin & Associates Inc. Insurance

PHONE: 301/261-2541

There are four disadvantages to purchasing life insurance through your mortgage company to cover the cost of the mortgage loan. First and foremost, if you were to die while this policy was in force, the mortgage company would be the beneficiary, and it would receive the proceeds of the insurance instead of your desired beneficiary.

This means that your surviving family members would receive a release of the mortgage lien to their home. But if they do not have sufficient money to live on, they may still have to sell their home.

Second, the surviving spouse and children may not desire to stay in the home. In addition, how are they going to live while the house is being sold, unless they have adequate life insurance beyond the mortgage life-insurance policy?

Third, this policy has a decreasing death benefit that follows the mortgage-repayment schedule, so if you outlive the mortgage, you may not have any life insurance.

Last, the insurance premium is fixed even though the death benefit is reducing with the mortgage. This type of plan typically is a fairly expensive way to protect the mortgage in the event of your death.

As to whether your current life-insurance program is enough, life-insurance industry experts state, as a rule of thumb, that you should have five to seven times your annual income in life insurance. This would provide the necessary funds either to pay off the mortgage or to make the monthly mortgage payments until your family decides whether to stay in the home or move on. This also would provide the survivors with a monthly income for as long as they need it.

There are many types of level-term life-insurance programs that can be purchased at very affordable premiums to take care of your life-insurance needs. These types of plans allow you to reduce the coverage as you see fit.

If you do not have an amount of life insurance equal to the above recommendation, you should call an insurance agent for a review of your current life-insurance program. …