All About Mortgage Protection Insurance
For most families the monthly mortgage payment is the biggest single expensive, and the ability to pay that mortgage is paramount to the welfare and stability of the family. Any sudden financial shock can put those mortgage payments behind, and once they fall behind it can be difficult to catch up, especially if the mortgage payment is a large one. Falling behind in the mortgage puts the family at risk of foreclosure, and losing the family home can certainly be a traumatic and life changing experience.
In order to avoid this unhappy scenario many people have purchased mortgage protection insurance. This specialized type of life insurance is designed to protect the family from losing the roof over their heads in the event of an untimely death. By purchasing this type of life insurance families can ensure that they never have to risk losing their home as well as their loved one.
Mortgage protection insurance is typically purchased at the same time as the home, but in some cases it can be purchased months or even years later. The amount of time that is allowed to elapse between the purchase of the home and the purchase of this type of protection will vary – some companies allow consumers to purchase coverage as much as five years later, while others require that the coverage be purchased 13 to 24 months after escrow has closed.
The underlying idea of mortgage protection insurance is easy enough to understand. Homeowners pay a premium that remains the same throughout the life of the policy. In exchange for this premium the insurance company promises to pay a death benefit if the insured dies before the expiration date. Basically, it’s a term life insurance policy where the term is the length of the mortgage.
The kind of death benefit provided will vary from policy to policy, and it is important to compare coverage options carefully. In some cases the mortgage protection policy will pay only the amount of the outstanding mortgage, although these days it is more common for the death benefit to be equal to the original amount of the mortgage.
Even though the amount of the death benefit is tied to the mortgage on the home, the beneficiaries of the policy are not required to use the proceeds to pay off the mortgage. In some cases it may be more beneficial to use the money for other purposes, especially if the interest rate on the mortgage is a low one. Beneficiaries are free to use the money in any way they see fit, from paying off or paying down the mortgage to covering the cost of college for the kids.
The price of mortgage protection insurance will vary from company to company and from individual to individual, but insurers typically use the same criteria they would for more traditional forms of life insurance. Factors such as smoking history, present and past health problems and age will be considered when the premium is being calculated. In addition a medical exam may be required before coverage is granted.
For families with an outstanding mortgage balance a mortgage protection insurance can provide real peace of mind and important protection. It is a good idea for anyone reviewing their insurance needs to consider this type of coverage very carefully.