Purchasing a home is one of the most exciting decisions that you can make. It’s a place of comfort and shelter. It’s a place to gather your friends and family. It’s your small corner of the world where your life happens. But with so much that you love revolving around your home, you want to make sure you protect it long after purchase. As the largest financial obligation that most families will ever take on, can your family manage the responsibility a home can bring to your budget if something happens to you? Thankfully, there are ways to help make sure they can!
Mortgage protection insurance can ensure that even in the event of your death or disablement, your home can remain a welcoming, nurturing place for your family. Read more to learn if mortgage protection insurance is right for you.
Is mortgage protection available for you?
If you own a home with a mortgage, you’re probably eligible for mortgage protection insurance. Mortgage protection insurance policies vary, but they typically cover events like job loss, disability, or death. If you lose your job or become disabled, the insurer will send payments directly to the mortgage company after a certain amount of time. In the event of your death, the policy will pay off the mortgage completely, leaving your family secure in their home.
It’s important not to confuse mortgage protection insurance with private mortgage insurance, or PMI. If you make a down payment of less than 20 percent of the purchase price of your home, you’re typically required to have PMI. If you get your home through a government-issued FHA loan, you’ll have a Mortgage Insurance Premium (MIP) as a condition of closing. MIP serves the same function as PMI, but it has a different name since it’s through the government instead of a private company.
These types of insurance aren’t about protecting you – they’re about protecting the bank. They pay your lender in the event that you get foreclosed on.1, 2 You can still choose to have mortgage protection insurance that helps protects you and your family even if you have MIP or PMI through your home loan.
How likely is it that will you be accepted for mortgage protection insurance?
As long as you have a home with a mortgage on it, then it’s typically guaranteed that your application for mortgage protection insurance will be accepted. This type of coverage can be valuable for people with long-term health issues, or people who work high-risk jobs. Conditions that can raise the cost of life insurance or disability insurance – or even get you turned away from having them – don’t have as much bearing on mortgage protection insurance.1
How similar is mortgage protection insurance to term life insurance?
For the most part, it works the same way as term life insurance. Once you purchase a policy, you continue paying regular premiums until the end of the policy term. In the event of your death during the term, the policy pays off your mortgage as a tax-free benefit. Under other circumstances, like disability or job loss, the policy may simply make mortgage payments for you for a period of time. Either way, your family won’t have to worry about managing those payments.
Like other life insurance policies, some mortgage protection insurance policies build cash value as you pay into them. If your policy builds cash value, and that value reaches the amount you owe on your home, you can cash the policy out in order to pay off the mortgage early. It may be a smart move. Since the policy only pays what’s left on your mortgage, you don’t want that cash value to get higher than the amount you have left to pay.
How much will mortgage protection insurance cost?
This will vary from company to company and policy to policy. In general, you may pay more for mortgage protection insurance than you would for a comparable life insurance plan. But the advantage of mortgage protection insurance is that factors like your health and your financial situation have less of an effect on your premium. And, they typically won’t cause you to be denied.
Who takes over the role of paying for the mortgage in the event of your death?
Since the mortgage company or lender is often the beneficiary, your family probably won’t have to make payments on your behalf. The mortgage payment would go straight to the lender.