THE BLOG

Term Life or Mortgage Life Insurance: Which Do You Choose?

10/05/2013 11:59 BST | Updated 10/07/2013 10:12 BST

Everybody knows how important it is to have life insurance, particularly if you have beneficiaries such as a partner or children. The peace of mind that comes from being covered with a great policy cannot be underestimated, especially when the pay out from that policy will go towards supporting your loved ones in the event of anything happening to you.

However, according to a study conducted by the LIMRA during Life Insurance Awareness Month in September 2012, three in American households are uninsured, with half saying that they need more life insurance. That could be as many as 35 million people without any life insurance at all, or not enough to cover them as much as they would like to be.

The study also found that 12% could not decide what type of cover to buy, 10% were afraid to make the wrong decision and 8% did not know enough about life insurance. This highlights a distinct lack of knowledge about life insurance, and that would indicate why so many of these people were opting about rather than opting in.

But where does could lack of coverage come from? You could argue that a lot of the people who are not insuring themselves for life cover are afraid of the financial ramifications of taking out any kind of policy. In this climate, any expenditure has to be kept to a minimum. But resting on your laurels is a big risk, and - at the risk of scare mongering - you never know when the worst could happen. Surely it is better to be covered and be able to maintain your lifestyle should anything happen? It is a dilemma for many households.

Weighing up the Options

Two of the most popular options for life insurance are term life and mortgage life insurance. They are extremely popular because they give reassurance to families after the worst case scenario happens and somebody is lost. In the case of mortgage life insurance, it covers the balance of your mortgage if a person listed on the mortgage dies. There is no way a partner of a deceased loved one will want the burden of sorting out their mortgage during such a stressful and painful time, and the mortgage life insurance makes such tasks a little easier for you.

Term life insurance has become extremely popular due to its flexibility. It pays a death benefit if a person listed on the insurance policy dies, and that money can then be used on anything from the mortgage, credit cards, debts or any other expenses of the family, including school fees. It has a distinct advantage over mortgage insurance in this instance, and also because the coverage can continue as long as you keep renewing the policy. A mortgage life insurance policy ends once the mortgage is paid off. There is no reason for a renewal afterwards.

The big question then, is term life or mortgage life insurance? The flexibility of a term life insurance policy has given it the edge because of the freedom is leaves for the people left behind to spend the money as they see fit. What also influences a decision to have a term life insurance policy is that it does not have to be changed every time you move house. A mortgage life insurance policy can be a hassle if you move around, as it only covers the amount of your mortgage, which will of course change as you move from home to home.

Hopefully a life insurance policy will not have to be used in such tragic consequences, but it definitely highlights the importance of having one. Everybody wants to protect their loved ones, and with a life insurance policy, you can do that whether you are here or not. The efforts to educate and raise awareness need to be doubled in order to ensure the secure futures of our families. There is no excuse not to be covered if you understand what the policies are, how much they cost and how important they are to you and your loved ones.