Mortgage life insurance error leaves widow in a bind

May 17, 2011

One widow recently found herself in a bind due to a problem with her deceased husband's mortgage life insurance policy.

In a recent MarketWatch Q&A article, a widow wrote in to ask for advice concerning a mortgage life insurance policy denying her a payout, since the policy was dropped when her mortgage was sold to a different lender.

Column author Lew Sichelman recommended that the widow try to seek legal recourse, but whether or not she had a viable case would depend on who had dropped the ball in the situation, her or the lender. If she is unsuccessful, she may wind up losing her home due to an inability to pay her mortgage.

Heartbreaking problems like this occur frequently and may provide an excellent argument for the need to obtain traditional life insurance policies.

Given the current economy, many of the previous arguments experts made against mortgage life insurance may be even more relevant.

One such argument is that the value of the policy is usually tied to the home value, since it is solely intended to pay off the mortgage, according to Cash Money Life. With home values sinking nationwide, some may be losing money on their policies.

Most people may benefit more from a term life insurance policy than mortgage life insurance "due to a potentially larger payout, lower premiums, and the flexibility of using your life insurance settlement how and when you want," the source said.  

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