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Term life insurance is a great way to protect against a mortgage or home loan default in the event of death of the main income earner.  The proceeds of a life insurance policy can pay off the balance or provide supplemental income for the monthly mortgage.  Although, many people cannot afford whole life insurance, especially young homeowners, term life insurance is a good, inexpensive alternative.

You can purchase a level term policy with one premium and one death benefit for the term of the policy.  Terms usually run from a choice of 10, 15, 10, 25, or 30 years.  Another option (although not necessarily the best)is to buy a decreasing term policy in which the premium stays the same and the death benefit decreases annually along with the mortgage balance. However, if the mortgage balance increases because it was refinanced, or a second mortgage is taken out, or the interest rate increases (e.g. adjustable rate mortgage), or if you buy a new home with a new mortgage balance, the decreasing term would no longer provide adequate protection.

Term insurance should not be confused with PMI, or Private Mortgage Insurance, usually required by the mortgage lender for people who put less than 20% down.  It does not pay off the mortgage in the event of death or disability.  The lending institution is the sole beneficiary of this policy.  Try to avoid the expense of PMI by making a larger downpayment if possible.

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