What Is Mortgage Protection Insurance?
Mortgage protection insurance is a life insurance policy that’s meant to cover only the cost of your mortgage. That way, if you were to die before your mortgage was paid off, the death benefit of the policy would automatically do so. So it would ensure that your loved ones could continue to live in the home without having a potentially large debt on their plate. Since mortgage protection insurance is structured to match your mortgage balance, the death benefit would decrease over time. And, like a term life policy, it could expire before the policyholder’s death without a payout.
Often, there aren’t any requirements to qualify for a mortgage life policy, which can make it a more accessible solution for those who own a home but have health conditions that may make it difficult to qualify for a traditional life insurance policy. Also unlike traditional life policies, the beneficiary wouldn’t be your family. Instead, that money would go directly to the lienholder on your mortgage. So the funds cannot be used to do anything but pay off the mortgage.
You may also see this type of policy referred to as mortgage life insurance.
Who Needs Mortgage Protection Insurance?
If you’re a homeowner and your income provides the majority (if not the entirety) of your family’s needs, you may want to purchase a mortgage protection insurance policy. These were designed to enable breadwinners to ensure that their beneficiaries would have the ability to stay in their family home even without that income.
It’s especially useful, however, if you can’t qualify for a traditional life policy. Otherwise, a traditional policy like term life insurance is more flexible, enabling you to leave a sum of money to your family that they could then use however they see fit.
Is Mortgage Protection Insurance Worth It?
With a mortgage protection insurance policy, you’d be able to get potentially hundreds of thousands of dollars worth of coverage without having to undergo a medical exam, or pass any other requirements other than owning your home. So it can be easier to access than life insurance policies, particularly for those with health conditions or dangerous jobs that may lead to higher traditional life policy premiums. Another key feature is that some MPI policies will cover the mortgage payment if the homeowner were to become disabled, for a limited time. Plus, the policyholder gets the peace of mind that their family would still be able to stay in their family home if they were to pass before paying it off.
However, there are some serious drawbacks to these policies that may deter people from getting them. For instance, the payout would not go to beneficiaries, as it would with a traditional life policy. Instead, it would be paid out to the lender, so the funds cannot be used for anything other than paying off the mortgage. The policy value also falls over time, even as the premium stays the same. And because of the way these policies are set up, it’s entirely possible that it would expire without a payout.
How Much Does Mortgage Protection Insurance Cost?
The cost of a mortgage life policy depends on several factors, in particular, the size of your mortgage and the remaining length of your mortgage term. That said, your age and life circumstances may also be considered by the insurer. The premiums for an MPI policy, however, would usually be fixed for a specific period of time, so they may change after that time period (though some will offer fixed premiums for the full term).
You should note, however, that because mortgage life insurance often has guaranteed acceptance – and therefore doesn’t require a medical exam – the premiums on these policies can be higher than what you’d pay for a comparable traditional life policy, particularly if you’re young and healthy.
How Do I Buy a Mortgage Protection Insurance Policy Insurance?
Oftentimes, these types of policies are purchased at the same time as the home, or within 24 months of purchasing it, and they are sold via the mortgage lender itself or a third-party insurance company.
Again, you don’t have to do a medical exam to qualify for this type of policy, as acceptance is guaranteed. That said, insurers may reject older homeowners. So that’s a key difference between this policy type and traditional life insurance. Unlike a typical life insurance policy application process where you will likely have to answer a series of questions to see whether or not you will be accepted, and if so, for what sized death benefit, the process for mortgage protection insurance is more straightforward. You notify the insurer that you would like to purchase coverage through them since the coverage amount would be determined by the size of your mortgage, rather than undergoing a full, or even accelerated, underwriting process. From there, the insurer would issue the policy and you’d begin to pay your monthly premium.
Like a term life policy, you’d have to pay that premium until the end of the term. In this case, that would be whenever the mortgage is paid off. Missing payments could mean lapsing the policy, in which case you’d lose that coverage. Credit USNEWS
Contact Coleman Agency for more details.
