As a homeowner, you know that mortgage payment each month uses much of your monthly budget. When you take on the homeownership, you recognize you are signing up for the long term, big financial responsibility as well.
But life is full of surprises, many of which you have zero control over. You can’t anticipate unemployment or illness. Maybe you have life insurance, but worry if it will be enough for your family if something should happen to you.
Have you heard of mortgage protection insurance? In the event life throws you one of those curveballs, it might give you the assurance you need that if you are unable to pay your mortgage you will be okay.
Read on to learn about mortgage protection insurance and how it can offer you the security you want and need.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is a type of purchased insurance. If something were to happen to you and you couldn’t continue to make your monthly payments, you can use the insurance and be covered.
Mortgage protection insurance coverage can make your mortgage payments for you if you don’t have an income coming in. This could be as a result of several factors like illness, unemployment or even death.
Some refer to this insurance as mortgage payment protection insurance or MPPI which should not be confused with PPI. MPPI is a policy the homeowner buys to protect their interests.
PPI or payment protection insurance covers the mortgage lender. Often PPI is required to protect the interests of the bank should the homeowner default on the loan.
PPI coverage is often required if the downpayment on the mortgage is low. While mortgage protection insurance, while optional for the homeowner, is wise.
Types of Mortgage Protection Insurance
There are several types of mortgage protection insurance available. You would need to decide on your goals for the coverage.
You can get coverage in case of unemployment, illness, injury or a combination of those things. If you become unemployed, your insurance can kick in and cover your mortgage. Should you become ill with a long term illness or debilitating injury, the insurance would make your payments for a period of time.
Mortgage protection insurance can also be purchased as a death benefit. There are a few ways to purchase this type.
Level term insurance can be purchased for a set amount. That amount and the premiums remain constant for the life of the policy. Even though you may owe less on the mortgage over time, the payout remains constant. This leads to higher premiums.
Decreasing term insurance works like the mortgage. As the amount of debt decreases, so does the premium and the payout should it be needed.
How Much and How Long?
If you purchase mortgage protection insurance as a death benefit, it can pay out a few ways. Mostly, in the event of death, the payout goes to the beneficiaries to pay off the mortgage in one lump sum.
If you buy it for unemployment, illness or injury the mortgage protection insurance can be purchased in a few ways for non-death benefits.
Often insurers will look at both your monthly income and your mortgage payment. You can purchase insurance so the amount you receive should you need it will cover just your mortgage payments.
It can also be purchased to cover your mortgage and your other monthly bills. So, instead of paying you the mortgage amount, they might instead pay you 125% with the intention that the additional monies cover other monthly expenses.
Insurers will evaluate your monthly income to decide on an appropriate amount of coverage based on your needs.
Most policies are written so they will cover you for up to two years for unemployment, injury or illness.
The insurance company often has restrictions about how soon you can apply for the coverage. Policies vary, but in most cases, you must wait a minimum of 30 days and up to a half year before you can apply for the benefit coverage.
Back to Day One Coverage
While most policies will require you to wait to apply for benefits should you become unemployed, injured or ill, there are some that offer what is called back-to-day-one coverage.
You still have to adhere to the waiting period to apply for benefits but once they start to payout, you will get it from the day you first qualified.
For example, you become unemployed at the beginning of June and need to wait until the middle of July to apply. Once the benefits start, however, they would cover you from the day you became unemployed.
Getting back-to-day-one coverage is more costly but does offer additional protection so you don’t go a time period with no protection.
Like the waiting period, if you need to apply for benefits, there is also a waiting period after you get coverage too. This time is called the exclusion period. While you might have coverage, you cannot use it yet.
The exclusion period, like applying to use the benefits, often is at least 30 days. Some policies will make you have coverage for up to half-year before you can use the benefits.
It’s not hard to know how the coronavirus has walloped the world with both illness and financial fallout.
Because of the significant impact of COVID-19 and large numbers of both deaths and unemployed, some insurers are opting to limit their coverage during the pandemic.
If you have decided to consider coverage because of fears from the pandemic, it pays to shop around and see what insurers have available.
Like any kind of insurance, especially life insurance, the insurer will want to know about your medical history. Do you have any pre-existing conditions that would make you riskier to cover?
If you have experienced a health problem, you might be required to wait a certain time period before being eligible to apply for the mortgage protection insurance.
Understanding Mortgage Protection Insurance
For the same reason you buy health insurance, auto insurance or even life insurance, mortgage protection insurance offers protection in the event of a worst-case scenario.
Nobody plans to lose their job or get a serious illness. Mortgage protection insurance offers you protection if life throws you that surprise.
If you are interested in learning more, we can help. Contact us today to get more information about our mortgage protection insurance packages.