There’s nothing as exciting and as fulfilling as owning a home. But, life is so full of uncertainties. One moment you are financially stable and able to pay your mortgage, the next moment you are broke and struggling to pay up on your loans.
The good news is that with mortgage protection insurance, you do not have to worry about a lender knocking on your door when the worst comes to worst. This insurance policy offers you some form of reprieve in case you are unable to meet your contractual obligations when you die.
While this sounds good, does that mean mortgage protection insurance is a good fit for you now? Should you include this product in your insurance portfolio?
These are some questions we’ll cover in this article. We’ll further define mortgage protection insurance and look at the pros and cons of having it. After reading this article, you’ll be comfortable deciding if mortgage protection insurance is right for you.
Mortgage protection insurance is a type of coverage that protects you and your loved ones in case you are unable to pay your mortgage due to death. Some policies offer coverage for a limited period. Examples might be because of critical illness, disability or loss of income.
When you take out a mortgage protection insurance policy, the lender is also protected in case you default on your payments due to the reasons highlighted above.
As intimidating as it might sound, mortgage protection insurance works in a very simple way. When you buy a house with a mortgage, you might choose to buy mortgage protection insurance. You can buy from your mortgage lender, a private insurance company or through a life insurance provider.
You will then have to pay monthly premiums. They’re calculated as a percentage of the loan amount, for the duration of the mortgage. The insurance provider will then pay your mortgage off in case you die.
Mortgage protection insurance works on a guaranteed acceptance basis. This means the insurer will not assess your health records, medical history or type of work before deciding whether you qualify for this type of policy. Compared to term insurance, your health status or nature of job does not matter and you can access mortgage protection insurance at any time since it is available to every aspiring homeowner.
Another major benefit of mortgage protection insurance is that the cost is not universal. Younger home buyers tend to pay cheaper premiums compared to older buyers. With statistics from the National Association of Realtors showing that most first time buyers are below 47 years old, you should expect to pay cheaper premiums if you fall under this age bracket.
The most important benefit of mortgage protection insurance is peace of mind. You can rest assured knowing that your loved ones will get to keep the home when you die. Moreover, some policies offer disability protection or loss of income protection for a limited period in case your injuries or job loss prevent you from meeting your contractual obligations.
Any payments from mortgage protection insurance funds do not go through several hands during compensation. No broker or family member will handle the money. The insurer will send a check directly to the lender to pay off the mortgage balance thereby improving transparency and eliminating any guesswork. This is my favorite point because it means your family can mourn without worrying about the stress of how to pay off the mortgage.
One of the biggest downsides of mortgage protection insurance is not even the amount of money that goes out of your pocket, but the declining payouts. As you continue to reduce your mortgage balance, the face value of the coverage also shrinks. This means that the insurer will only pay the lender the outstanding mortgage balance at the time of death.
The coverage offered by mortgage protection insurance is somewhat limited in the sense that most policies only pay off the mortgage only when the policy holder dies. Then again, the insurer only pays the mortgage, meaning your family will not be able to access and use the money for other commitments.
To decide whether mortgage protection insurance is the ideal choice, you first need to ask yourself these simple but critical questions:
By answering these questions, you are now able to decide what’s right for you based on a solid understanding of this insurance policy.
The essence of mortgage protection insurance is to protect you and your loved ones in case you are unable to pay your mortgage because of illness, disability or death.
With this insurance cover, you can be sure that all your years of hard work during your homeownership journey does not go to waste. Your home will remain with your loved ones and you can avoid foreclosure in case you default on mortgage payments.
Buying a house is a huge financial commitment. With this in mind, you should not let years of financial pain, sweat and hard work go in vain. Secure the family home and the future of your loved ones by investing in mortgage protection insurance. This article on the best way to find a great mortgage protection plan will help you. This insurance promises to safeguard your home in case you default on your payments because of life’s uncertainties.