What Is Mortgage Protection Insurance?
In a nutshell, mortgage protection insurance is a policy designed to cover homeowners in the event that they become disabled or temporarily unemployed. Depending on the specific policy, coverage will pay for either a designated fraction of your mortgage or the whole amount for a set length of time. Many different policies and stipulations exist, but this coverage aims to offer homeowners a much-needed safety net.
Not all kinds of mortgage protection insurance will benefit everyone. Some may not benefit from having this coverage at all. That’s why it’s so important to work with an independent insurance agent to find out if this coverage would benefit you and to find the right kind of policy.
What Does Mortgage Protection Insurance Cover?
What your mortgage protection insurance covers will depend entirely on your specific policy, but we’ll go ahead and outline a few different kinds of coverage mortgage protection insurance is designed to provide.
Mortgage protection insurance provides coverage for the following:
- Disability: Mortgage protection insurance basically acts as a disability policy with extra benefits. Coverage will protect you by paying some or all of your mortgage for a specific amount of time should you become injured, or ill and disabled from working as a result.
- Unemployment: If you get laid off and are temporarily unemployed, coverage can be set up to pay either part or all of your mortgage while you are out of work.
- Death benefits: Mortgage protection insurance can also act a bit like a life insurance policy in that it can be set up to pay off the remainder of your mortgage straight to the lender if you die. Certain policies also have features built in that allow for your designated beneficiary to collect the full amount of your original mortgage. Your beneficiary could then pay off any remaining balance on your mortgage and treat the leftovers as a gift.
Obviously, you’ll need to work closely with an agent to get set up with a policy that works in the way that you want it to. Different mortgage protection insurance policies may be designed to cover just one of the above aspects, multiple, or all of them.
Is Mortgage Protection Insurance Mandatory?
You don’t have to get mortgage protection insurance, it’s more of a “there if you need it/want it” kind of policy. Now, whether you’d want to get coverage is another matter.
It may be helpful to contemplate the following factors when considering mortgage protection insurance:
- If the premium is worth it: The cost of mortgage protection insurance premiums is all over the place and based on a number of factors which we’ll explore further in just a moment. Those looking into this coverage will need to weigh the risks of not having it against the amount they’d have to pay every month in order to cancel out those risks.
- If you work in a high-risk industry: Certain professions are just more dangerous and come with higher risks of injury/illness/disability. Construction workers, for example, have a much greater chance at becoming disabled due to their daily tasks than say, florists. Workers in more physically demanding and riskier professions will probably find this kind of coverage more appealing or necessary than others.
- If you’ve been disabled/unemployed before: If you’ve already experienced a scenario in which you were unable to work and faced difficulty in making your mortgage payments, this kind of coverage might be ideal for you.
- If you want certainty in making your payments: Those worried about one day becoming unable to make mortgage payments due to circumstances outside of their control may find this kind of coverage very appealing. Mortgage protection policies can offer peace of mind for homeowners who are anxious about needing to make recurring payments in order to avoid losing their home.
- If you want to protect your loved ones: When your time eventually comes, probably the last thing you want to do is leave your loved ones with the stress of caring for a home that still has an outstanding mortgage balance. Mortgage protection insurance can save your spouse or heirs from having to cover any remaining costs by paying off the balance directly to the lender.
How Much Does Mortgage Protection Insurance Cost?
Unfortunately it’s difficult to say, since policies vary so greatly. Different insurance companies offer several options for how their coverage is set up. However, it might help to consider the factors that influence the cost of this coverage.
The following factors may influence the cost of mortgage protection coverage:
- The cost of your mortgage: The higher the cost of your mortgage, the higher the cost of mortgage protection insurance most likely.
- Your age and health: For the policies that act like a type of life insurance and offer a payout to your mortgage lender if you pass, your age and health status will be taken into consideration at the time of applying. The sooner you’re likely to die, the higher of a risk you’ll be considered. And with insurance, more risk always means more money.
- Your profession: Those professions deemed to be dangerous due to the nature of their daily duties will be riskier and more costly to insure, simple as that. However, positions in start-up companies are also considered to be high-risk, since there’s no guarantee of job security.
TrustedChoice.com Article | Reviewed by Paul Martin
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