An insurance policy designed specifically to repay mortgage debt in the event of the death of the borrower. These policies differ from traditional life insurance policies in that, for a traditional policy, the death benefit is paid out when the borrower dies; however, a mortgage life insurance policy doesn't pay unless the borrower dies while the mortgage itself is still in existence.
There are two basic types of mortgage life insurance: decreasing term insurance, where the size of the policy decreases with the outstanding balance of the mortgage until both reach zero; and level term insurance, where the size of the policy does not decrease. Level term insurance would be appropriate for a borrower with an interest-only mortgage.
Before buying mortgage life insurance, you should carefully examine and analyze the terms, costs and benefits of the policy. Remember, there are two lifespans to consider - your lifespan and the mortgage's.