Homeowners with mortgages are routinely paying two to three times more than they need to for life cover that is tied to their lender and shrinks over time, according to Andrew Ostro (pictured), CEO and co‑founder of digital life insurance provider PolicyMe.
Ostro said many borrowers accept lender‑offered mortgage insurance during the loan application, without realizing that a separate term life policy could be both cheaper and more useful for their family.
“People who have mortgages… should certainly be making sure they have life insurance policies to at least cover that mortgage,” Ostro said in an interview with Insurance Business.
When consumers apply for a mortgage, they are often presented with a short section asking whether they want insurance attached to the loan. If they tick yes, they typically face only a handful of broad health questions before coverage is added to their monthly mortgage payment.
“It’s a lengthy application,” Ostro said of the mortgage process. One of the sections of that application will be: “Do you want insurance attached to your mortgage?”
If you decide to get it, “then there are a few questions on your health… and for the most part, most people can qualify,” Ostro said.
He added that, for most healthy borrowers, the price gap is significant – and it shows up directly in the monthly bill.
“It’s not a couple of dollars here and there, it’s two to three times the amount.”
In the context of a mortgage payment that can easily run into the thousands, he said, the extra premium often goes unnoticed.
Beyond price, Ostro pointed to several structural drawbacks of mortgage insurance compared with personal term life cover.
First, the beneficiary. With mortgage insurance, he said, the payout goes directly to the lender to clear the mortgage, not to the deceased’s family.
“Maybe the family says: ‘You know what, I’d rather take that $500,000, continue to pay off my mortgage $2,000 a month and start a business or buy my kids clothing, put food on the table.’ We’re talking about a situation here where the primary income earner passes away,” he added. “Maybe I don’t want to pay off this whole house right now. I need some flexibility to do some other things.”
Second, the coverage amount on typical mortgage insurance declines as the loan balance falls, while premiums often do not.
Third, he said, many lender‑linked policies are only tied to the term of the mortgage, typically five years, leaving borrowers exposed if their health deteriorates over that period.
By contrast, most personal term life policies lock in coverage and pricing for 10 or 20 years or more.
“If anything happens to your health over that time frame, you don’t lose your coverage,” he said. Ostro said the reason mortgage insurance is simpler to buy is also why it costs more: less information and looser underwriting mean insurers price for more uncertainty.
“Term life insurance includes a lot more questions,” he said. “That’s how we’re able to give you a better price, because we’ll know more about you”.
On the other hand, because underwriting is stricter, not everyone will qualify for the cheapest term life rates, he noted. For borrowers with more serious health issues, the cost gap versus lender mortgage insurance may narrow. But for the roughly top two‑thirds of applicants from a health standpoint, standalone term coverage is still substantially cheaper.
He acknowledged that the friction of a longer application is one reason many borrowers opt to accept whatever their lender offers.
“There’s certainly some hit to the experience,” he said. “But when we talk about saving $60 a month for 20 years, it’s the wrong choice to prioritize answering fewer questions once, doing it in two minutes instead of 10.”
Despite his criticism of lender‑linked products, Ostro said the bigger problem is households skipping protection altogether.
“My takeaway would be, if you’re going to get nothing, take the mortgage insurance over nothing,” he said. “But what you should be doing is buying a proper term life insurance policy… for the majority of people, term life insurance is by far the better solution to covering your family than buying the policy through your mortgage.”
