If you acquired a mortgage for your home, then chances are that you have received plenty of mailers advertising mortgage protection insurance. In fact, not too long after signing the papers for my own home, I immediately began receiving these mailers promoting mortgage protection insurance – and they continue to this day more than a year later.
When you are bombarded with these mailers, it’s difficult to decipher what is legit and what is junk mail. Besides that, why does a homeowner need mortgage protection insurance? The following information will assist you in forming an understanding of exactly what mortgage protection insurance is so that you are well informed the next time you come across the offers in your mailbox.
Mortgage Protection Insurance – What is It?
Mortgage protection insurance provides coverage for either a portion or for all of your monthly mortgage bill in case you become unemployed or disabled. In fact, most of these policies will pay off your entire mortgage once you pass away. While policies vary from one company to another, it’s important that understand your options and their cost.
Many times you’re given the option to purchase this type of insurance from your mortgage lender. However, you’re not obligated to take them up on their offer since you are able to obtain mortgage protection insurance independently through most insurance agencies. It’s always a good idea to shop around – insurance companies do offer different coverage options at differing prices.
Naturally, the cost of insurance differs from person to person. As with life insurance, your premium rate is dependent on factors such as your age, your health, the current value of your home, your monthly mortgage payment amount, and your current mortgage balance. For mortgage protection policies that make monthly payments on behalf of a disability, your rate will depend greatly on the industry you worked in. For example, a roofer has a higher risk of disability compared to an accountant.
If your mortgage protection insurance is designated to pay off your mortgage at the time of your death, then your insurance company will forward payment to your lender for the remaining balance of your mortgage. This way, your beneficiaries will not have to take care of a home with a mortgage. However, if your policy covers job loss or disability, it may not cover your entire mortgage payment, but rather a certain amount as specified in your policy contract.
Mortgage protection insurance differs from private mortgage insurance, which allows payment to go to your lender should you default on your mortgage loan, or there isn’t a specified benefit amount set for you, the borrower. Conversely, the mortgage protection insurance we are discussing protects you as the borrower.
Mortgage Protection Insurance – Why Buy It?
First off, if you’ve already purchased a term life or UL policy to replace your income, the balance of your mortgage was most likely included in your needs analysis conducted by your agent. If this is not your case, then it will be a wise decision to consider purchasing mortgage protection insurance. Two more important reasons to consider:
- Higher Acceptance Rates
It’s rare that an insurance provider not accepts a homeowner for mortgage protection insurance. While most homeowners count on the fact that their disability or life insurance will cover the cost of their mortgage, some are unable to qualify for life insurance due to their age or pre-existing medical conditions. If this is your reality, then mortgage protection insurance is the best option for you and your family.
- Peace of Mind
Many individuals go to work every day with the stress of what will happen to their home in the event of a disability or lay off. But with the proper mortgage protection policy, you will no longer have to stress because you will know that no matter what, your mortgage payments will be paid. While you may never know if you’ll need to use your insurance policy, you will have peace of mind knowing that you are covered.
Unfortunately, there are some instances when mortgage protection insurance may not be beneficial.
- Maximum Payment Limitations
In the event that you lose your job, your policy will not pay what you normally receive in monthly wages. Instead, the amount you receive will be specified in your contract as a percentage or a set amount. While this may seem unfair to some, the insurance companies designate this limit in order to motivate a quicker return to work.
- Balancing Your Budget
If you have a relatively low mortgage payment, mortgage protection insurance will most likely not be worth such a commitment for you. Moderate investing into an emergency fund will provide you with enough cushion in order for you to make your mortgage payments in case of disability or unemployment.
Alternatives to Consider
Most homeowners purchase mortgage protection insurance instead of or along with disability insurance or traditional life insurance. If you are eligible and receive a good rate for either of these insurance products, you will have the funds available in case of disability or death provided you’ve maintained your premium payments.
There are some agencies that offer job-loss insurance, and some mortgage protection insurance policies will provide coverage for some or all of your mortgage payments in the event that you do lose your job. You could also put more emphasis on increasing your emergency fund so that you are able to pay several mortgage payments should you lose your job or become disabled.
Risky occupations and medical conditions can make obtaining disability and life insurance difficult. Be sure to compare numerous companies prior to making your final decision, and know all of the details of the policy before signing on the dotted line.
Carefully consider your options regarding mortgage protection insurance. Questions that you will want to ask your agent include what is covered, what’s the cost, what’s the payout, and when is the payout. Don’t forget to mention any other features that you feel are necessary for you and your family.
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