People often purchase life insurance for significant expenses, such as education, retirement money, or a house mortgage. It is a safeguard action for the peace of mind if something wrong happens to you, that your loved ones can continue to lead a life without paying off your debts. Traditional insurance may not be a fit to help you out of an enormous debt, but mortgage protection insurance always ties with your mortgage. So do you need it, and what are the benefits of Mortgage Protection Insurance, let’s figure it out right away.
What is mortgage protection insurance?
Just as when you buy a house and purchase insurance to prevent bad scenarios, a mortgage protection insurance policy can act as a protection to pay off your mortgage. To simplify the term, mortgage protection insurance is a life insurance cover for the principal and interest of your mortgage payment in case of your death or unable to finish the payments due to disability or loss of work. In the two latter circumstances, the policy usually works in the short term.
Where exists insurance, there are premiums, and that premiums need to be paid in due. In a mortgage protection insurance case, the cost of the premiums is determined by the amount of mortgage, health status, and age.
Mortgage protection insurance vs. Term life insurance
If you take natural behavior into consideration, life insurance for mortgage and term life insurance are somehow alike. You purchase a policy from an insurance company, pay the annual premium. If your term ends, the coverage ends with it. But if you happen to pass away during the efficient period, there will be death benefits offered to your beneficiaries.
However, there still exists some small unlikeliness when mentioning mortgage protection insurance or term life insurance. While in term life insurance, your spouse and offsprings are the only beneficiaries, for mortgage protection insurance, the range applies otherwise. Precisely, your death benefits will go to the hand of the lender and mortgage company. Moreover, the death benefits will not just be deducted by some fixed numbers; its value can increase as time goes by. And for term lengths, it can be flexible in the case of term life insurance, while with mortgage protection insurance, it must be equal or at the same length as your mortgage term.
Hidden benefits of mortgage protection insurance
First, as age and health issues affect most insurance rates, it is hard to get a good life insurance policy to cover mortgage payments. Luckily, this is where mortgage protection insurance has an advantage. The policy rate would primarily not shift if you were old or happen to catch an illness, as it often comes with a “guaranteed acceptance” rule. There will be no medical exams or the like to get mortgage protection insurance. It is easy to notice the flexibility and convenience of mortgage protection insurance. But be sure to research and compare all the companies thoroughly before choosing a specific lender.
Second, mortgage protection insurance has a distinct purpose: paying off your vast debt (in most circumstances, house mortgage) and accumulating money just for it. Even if you pass away, the policy will be used directly for the monthly mortgage payment. On the other hand, it is different from traditional insurance, as you might receive a significant amount of money but do not know how and where to use it.
Third, no guesswork. Your insurers will take the same money and pay it directly to your lenders. So, thanks to that, your family will not need to worry about handling the debts or losing properties after losing income.
Fourth, for disabled and unemployed people, mortgage protection insurance is the saving plan. If you are temporarily unemployed, there is still protection against paying off debts. And if you happen to meet with a disability at any time, your family will not have to worry about the mortgage payments. However, these insurance policies often appear for a limited time.
How to get mortgage protection insurance?
Do I need mortgage protection insurance? Considering all the factors and finding out mortgage protection insurance is suitable for your situation, remember to research and compare before purchasing one.
As they are not everywhere in the market like other types of insurance, make sure to dig dip into the mortgage lenders, brokers, and other insurance companies. Knowing what the insurance coverage does and not, understanding the policy to the core is the best way to get an ideal mortgage protection insurance.
Mortgage protection insurance is a guaranteed way to protect your loved ones’ life after your death, and there is still a debt payment hanging. When the standard insurance policy cannot handle the situation or when you struggle to get a good one, mortgage protection insurance can be your ideal choice.
Frequently Asked Questions
As mortgage protection insurance (MPI) costs twice as much as the cost of the same life insurance policy, some people do not consider it in their list. However, with the advantages it displays (no medical exams, exist only to pay off debt, no guesswork, etc.), mortgage protection insurance is worth your financial investment, especially for those who are ineligible for traditional insurance.
Mortgage protection insurance gives a purpose to your hefty sum of money. It is dedicated to paying off the most significant debt of your life and spare your family with peace in mind. They do not need to worry about the house being taken away from their hands as debt-not-paid; the MPI makes sure there is enough money to cover it.
And the most welcoming factor is that MPI presents no medical exams. Even if you become old or are in poor health, the policy rate may not vary as it comes with a “guaranteed acceptance” rule.
As the sole purpose of mortgage protection insurance is to pay off debt, for some, the scope of this insurance is considered narrow.
Second, the cost may be too high, especially compared to life insurance. In some cases, the rate of mortgage protection may see double the standard insurance rate.
Third, the death benefit is not fixed and can decrease over time.
In all, the downside of mortgage protection insurance may lie in its lack of flexibility.
Is mortgage protection insurance and life insurance alike?
Mortgage protection insurance and life insurance may look the same outside as they share some basic features. However, they still differ in a few elements.
The mortgage protection insurance is directly connected to your mortgage. MPI ends when the mortgage ends. It also means that the term of this type of insurance must be the same length as that of the mortgage.
On the other hand, the changes in mortgage do not affect life insurance, which means term lengths can be flexible, too. When you pass away, and your mortgage ends, the insurance can still provide your beneficiaries.
Another advantage of MPI is that the time and procedure involved can be easy to handle compared to life insurance. There is no in-depth medical check, which is necessary for life insurance.
In conclusion, depending on your needs, choose the kind of insurance that perfectly fits you.
There are three options for you to purchase mortgage protection insurance from.
First, your mortgage lender. The norm is that when you strike a loan at their companies or their interests, they tend to offer you a mortgage protection insurance policy to ensure that the debt is paid.
Second, an insurance company. There are thousands of insurance companies in the market nowadays, but not so many specialized in giving out mortgage protection insurance. But when they do, they do it in the best services and best coverage.
Third, a life insurance provider. This option may be considered convenient as many of you have already or plan to get life insurance at some point in your life.
Whichever options you may choose, make sure to take time digging deep for information and make comparisons in each stage—considering pricing, features, and coverage, finding the best policy that suits you.
There is no limit to the cost of one mortgage protection insurance. It all depends on the following factors: your age, your smoking status, your life status (including marital, lifestyle, health, and job), and of course, the condition of the mortgage itself.
If you have more than 100.000$ left on your mortgage, then the minimum monthly premium of the mortgage protection insurance may be at 50$. When adding riders, the numbers can increase to 150$.