Mortgage Protection Insurance
Before accepting the responsibilities and obligations associated with taking on a mortgage that can last for several years, there is one option that you can consider to keep your home protected from foreclosure in the event that you cannot pay your monthly mortgage.
MPI or mortgage protection insurance offers protection to homeowners in the event that a health problem arises that can render them disabled or if they suffer from a long term job loss. In worst-case circumstances, this form of coverage can pay off the mortgage balance if the borrower passes away.
Mortgage protection insurance can act as a safety net for other homeowners while some may just consider it as an avoidable expense that might end up draining their only limited budget. Your financial and health circumstances are the key factors to help you determine if you should get a mortgage insurance policy or not.
What is Mortgage Protection Insurance?
Mortgage protection insurance is a form of life insurance meant to pay off an existing mortgage in the event that you pass away. There are some policies that cover the mortgage payments as well for a limited timeframe if you suffer from a disability.
Mortgage protection insurance policies primarily function as a form of disability or life insurance. The price of the monthly premium can vary based on the loan’s amount and health and age of the individual. There are some mortgage protection insurance policies that cover the mortgage if a disability occurs and these premiums are dependent on the occupation of the borrower.
If you pass away with a mortgage balance and you have a mortgage protection insurance policy in place, the insurer will pay your lender directly of the rest of your loan balance. Any heirs, like children or spouse, won’t need to worry about losing the property or making any future payments for the mortgage.
Mortgage protection insurance policies that pay a benefit for a disability or job loss often cover the mortgage payments for a year up to 2 years. The policy spells out if there will be a mandatory waiting period prior to making any payments. These policies typically cover the interest and principal part of the mortgage payment but not the rest of the fees such as homeowners insurance, property taxes, or homeowner’s association dues. However, these expenses can be covered by adding a contract rider.
There is no need to have mortgage protection insurance for your loan to be approved. This will come at an extra cost that will be added to the loan payment every month.
It might not be a financially wise move to have a mortgage protection insurance policy in place. Instead, homeowners need to use the debt, income, mortgage, and education or DIME method that will consider the amount of the mortgage in determine the amount of term life insurance that you need to get.
The DIME method is considered as a way of calculating the amount of life insurance coverage that you will need. In order to do it, you have to add up all the outstanding debts you have, your outstanding mortgage balance, the expected education expenses of children if you have any, and your income. After that, you can subtract from the sum the existing insurance coverage you’ve got. If there is any surplus, you will have substantial coverage yet if there is a shortfall, this is the amount of term life insurance that you need to purchase. The said method totally negates the need of getting a mortgage-specific insurance. In the meantime, people must practice better financial planning in general at the same time.
Is Mortgage Protection Insurance a Good Idea?
There are several good things about mortgage protection insurance and these include the following:
- No guesswork is involved – The check for the exact mortgage balance will go directly to the lender so there will be enough all the time and your family don’t need to handle the money.
- Approval is guaranteed – It doesn’t matter if you are working in a dangerous profession or you are in poor health because there will always be guaranteed approval with no lab tests or medical exams.
- Disability protection – There are some mortgage protection insurance policies that make mortgage payments often for a limited time in the event that you lose your job or become disabled.
What is the Cost of Mortgage Protection Insurance?
The cost of mortgage protection insurance will vary a lot depending on different factors including the price of your mortgage payments and your age. For the obvious reasons, unemployment, sickness, and accident mortgage protection insurance is pricier compared to sickness or accident-only and unemployment-only policies.
When trying to figure out mortgage protection insurance premium costs, the insurance companies will typically consider:
- Your smoking status
- Your age
- Amount left and length of the mortgage
One more cost factor is if the policy will be a joint coverage for the two spouses. If this is the case, the company is going to pay a death benefit once one of the couple passes away. Even though this coverage is going to cost you more than if you only cover one person, mortgage protection insurance policy will possibly have a lower cost compared to purchasing two individual policies for term life insurance.
Do We Need Mortgage Protection Insurance?
There are a couple of reasons why you might need mortgage protection insurance. For one, this will give you the ultimate peace of mind that you need. Just like with any form of insurance policy, there simply no way for you to know if you will use your insurance or not. However, you can have the much needed peace of mind thanks to the safety net that your insurance offers.
There are people who go to work each day, constantly wondering and worrying what will happen to their house if they become disabled or lose their job. When you have the right mortgage protection insurance policy in place, you don’t need to feel stressed out and you will also know that all of your payments are going to be made.
There are also very high rates of acceptance in mortgage protection insurance. In fact, there are just a few reasons why insurance providers will reject your mortgage protection insurance. Although there are people who rely on their disability or life insurance to cover such costs, there are people who have issues in getting life insurance due to their pre-existing medical conditions and age. If you can relate to this scenario, mortgage protection insurance might be your best choice to keep the standard living of your family protected.