Why Should I Purchase Mortgage Protection Insurance?
Certainly, we get a lot of questions about mortgage protection insurance and the “why” question is typically the top of the list. The primary reason for purchasing mortgage protection insurance is so you can leave your surviving loved ones a paid for home if you should die unexpectedly.
If you are single, you’ll likely not see the benefit of paying off your home when you die unless there is a family member or a friend that you would like to leave it to. Here is some of the most common feedback we get about mortgage protection insurance which is also referred to as mortgage life insurance.
Why Should I Buy It When I Have Life Insurance through Work?
It’s certainly great to have an employer-sponsored life insurance policy. But the problem is most workplace policies have a death benefit that is one or two times your annual salary. Based on this, if you earn $100,000 a year and have a $300,000 mortgage, your beneficiary will not be able to pay off the mortgage on the home. When this happens, the surviving spouse or family member will typically have to sell the home and either rent or get something they can afford.
I Already Have Individual Life Insurance, Why Buy More?
If you did not own the home when you bought your policy, the chances are you did not consider the mortgage when you bought your policy. Also, if you have a ten or twenty-year term policy, it won’t help you much with a 30-year mortgage.
For most people, when they buy term insurance, they do not go by a legitimate “insurance needs analysis” and they end up buying far less life insurance than they actually need to buy.
Isn’t It More Likely for Me To Become Disabled than to Die?
Actually, yes; it is more likely for an individual under 50 to become disabled than to die of natural causes. The good news is that many of the companies that offer Mortgage Protection Insurance also have an optional rider that provides for the insurance company to pay you a monthly benefit while you are totally disabled and cannot work. This monthly benefit combined with disability insurance or social security disability will likely allow you to continue your mortgage payments and negate your chance of foreclosure by the lender.
How Much Does Mortgage Protection Insurance Cost?
Since mortgage protection insurance is typically Term Life Insurance, the cost is very affordable. As with any life insurance product, the cost will depend on your age, your health, and the amount of coverage you need. There are, however, some additional charges if you elect to add some of the available riders to your policy.
According to Zillow.com, the average home value in the U.S. is $216,700 with an average selling price of $275,000. The median price for homes sold in the U.S. is $230,800 which means sellers are getting about 84% of their asking price.
Here is what you can expect to pay for a 30-year $250,000 Mortgage Protection Insurance policy without any additional riders. These rates are based on an applicant who is health and a non-smoker:
After reviewing this rate chart, it should be apparent that being able to pay off your mortgage in the event of your death is very affordable. In fact, if you are 30 to 35-years old, your monthly premium works out to be less than the cost of two large pizzas!
What Optional Riders Do You Recommend?
As we mentioned earlier, there are several optional riders that can be added to your mortgage protection insurance policy that allows you to broaden your coverage and provides living benefits. The riders you select will increase your monthly premium based on the additional charge for the rider.
Typically there is no additional charge for the accelerated death benefit rider and in fact, many insurance companies include it as part of the core coverage. This rider provides for the insurance company to advance a portion of the death benefit to the insured if he or she is diagnosed with a terminal or critical illness. This is a lump sum benefit that is paid tax-free and allows the insured person to use the funds in any manner they choose.
The disability income rider acts as a short-term disability policy. If the insured becomes disabled and cannot work, the insurance company will pay a monthly benefit to the insured to help with their mortgage payment.
This important rider helps the insured keep their insurance in force if they are disabled and cannot work. The insurance company will waive any periodic premiums that come due while the insured is disabled to keep the policy in force.
The return of premium rider provides for the insurance company to return all premiums paid to the company if the insured outlives the policy term. The returned premium is paid in a lump sum that is non-taxable and the insured can use this money in any manner they chose. It should be noted, however, that this rider can be expensive and may be cost prohibitive for applicants over age 35.