Paying off your mortgage if you die sounds like a great option for your loved ones, but what if the same policy could pay off your mortgage 7 to 8 years early if you live a long healthy life?
Mortgage protection insurance can help you pay off your mortgage early if you buy the right plan. Let’s take a look at one type of life insurance that can pay your mortgage off early if you live.
Type of plan – How it works
There are several types of policies you can use for these strategies, a term with a return of premium can work, but an index universal life policy is your best option. An Index Universal Life policy will provide a death benefit and build cash value. The cash value will grow by tracking an index such as the S&P 500. IUL policies get all the upside and possibility of double-digit market returns (up to a cap) with none of the downside of negative market years.
For the case study, I used a 30-year mortgage at a 3.5% rate. A $500,000 mortgage with 20% down payment. You can run amortization schedule here
Monthly Mortgage Payment
Mortgage Balance in Year 22
Life Insurance Policy Details
An IUL for a 40-year-old non smoking male with a $400,000 death benefit. Preferred Plus rate class used.
Cash withdrawal options
As you can see the cash value in the policy in year 22 of this plan will be more than the remaining balance on the mortgage. You now have two options with the life insurance policy. You can surrender the policy and take all the cash to pay off the remaining mortgage which will end the policy. Or you can make a withdrawal/loan on the cash value (after all this is your money) and this will keep the policy force and the death benefit alive.