As an independent agent for over 25 years, I’ve had many people ask me why they should consider purchasing mortgage protection insurance. It’s actually a very good question because spending money on redundant coverage doesn’t make a lot of sense, not me anyway. So, why purchase mortgage protection insurance?
Anytime you purchase life insurance there should be a reason or reasons for purchasing it and just as important, there should be an appropriate amount to purchase. With this in mind, let’s consider some scenarios you may not have thought about in order to determine if Mortgage Protection Insurance makes sense for you. But first, let’s explain what mortgage protection is.
What is Mortgage Protection Insurance?
First of all, mortgage protection insurance is not a type of insurance; it’s a purpose for insurance. In fact, when you purchase mortgage protection insurance, it’s unlikely that the words “mortgage protection insurance” will be found anywhere on the policy.
Mortgage Protection Insurance is a term life insurance policy with a death benefit equal to your mortgage balance and will typically be purchased for the same term of your mortgage. In other words, to cover a 20-year mortgage, you would buy 20-year term insurance. And the same thing goes for a 30-year mortgage. This way, if the primary earner in the family dies unexpectedly, the beneficiary would use the death benefit to pay off the balance of the mortgage.
With the newer term policies available today, it doesn’t make sense to use decreasing term insurance that was used in the past because even though the amount of coverage is reduced as the mortgage balance is reduced, the premium would stay the same. The mortgage protection insurance policies today are typically level benefit policies which means if the insured dies near the end of the term, the beneficiary would pay off the mortgage and keep the balance of the death benefit.
Since term insurance rates are lower than they’ve been in quite a long time, most applicants can also afford to add valuable riders like the disability income rider or waiver of premium rider.
Are You a First-Time Homebuyer?
First-time homebuyers are considered prime candidates for mortgage protection insurance and here’s why. When you are buying your first home, it’s likely that you already have individual life insurance or group life insurance through your employer. Since you probably didn’t consider a mortgage debt when you purchased your individual life insurance, then you are probably not carrying enough life insurance to take care of your surviving loved ones AND PAY OFF A NEW MORTGAGE.
If this sounds like your circumstances, then rather than buy a completely new policy to cover all your debts and including your mortgage, you can simply buy mortgage protection insurance to cover your mortgage. This way you’ll have peace of mind knowing that if you die unexpectedly, your surviving loved ones can stay in a paid-for family home and the other policy you had previously purchased can be used for other financial needs.
But, I have Life Insurance through my Employer?
It’s always a bonus to get group life insurance through your employer. There is usually no medical underwriting involved and the rates are especially low or in many cases, the employer picks up the tab for the premium. Unfortunately, there can be a problem with group life insurance.
Most employer-sponsored life insurance plans are not portable. This means if you leave for any reason, it’s unlikely that you can take your life insurance with you. Another problem with group life insurance is that the death benefit is typically a multiple of two or three times your annual income. If you are earning $75k per year and your life insurance coverage is only $150,000, your beneficiary will likely not be able to pay off the mortgage, the funeral, or other financial needs. You need mortgage protection insurance!
For most Families – Their Home is their most Valuable Asset
When you consider that your home is your most valuable asset and your mortgage is your largest debt, it makes sense that you would put insurance in place so that this huge debt is not passed on to surviving loved ones. This is especially important if both spouses in the family must work to support the mortgage and other living expenses. If this is the case with your family, both you and your spouse should have mortgage protection insurance.
What if I sell my Home and Buy Another One?
Since your mortgage protection insurance covers you and not your home, you can take the policy with you if you sell your home and buy another. You may want to purchase another policy for the difference in coverage you need, but that will likely be a smaller policy with a very affordable premium.
If My Policy Expires – Have I wasted all that Money?
No, not at all and here is why. Most term insurance policies have a conversion privilege that allows you to convert your term insurance into a permanent insurance policy like whole life or universal life. And there is even better news here. When you decide to convert all or a portion of your mortgage protection insurance (term insurance), you don’t have to prove that you are healthy because there is no insurability requirement.