Pros and Cons of Mortgage Protection

By
Mortgage and Lending with Success Mortgage Partners, Inc. NMLS #130562 229758

What is Mortgage Protection?

            Generally, mortgage protection insurance will cover a certain % of your monthly mortgage bill in the event that you lose your job or become disabled, for various lengths of time. (Each Sate has different policy requirements)  Most of these policies will also pay off your entire loan should you pass away. Policies can differ greatly from one agency to another, so you need to know what a given policy offers for the price. Shop around because different agencies will have different coverage options and prices.

      The cost of mortgage protection insurance varies from person to person, and as with life insurance, your rate is based on your age and health, as well as the current value of your home, the amount of your regular payment, and the current payoff amount of the mortgage. With policies that make monthly payments in the event of a disability, your cost will vary greatly based upon the industry in which you work. A construction worker, for example, is at a higher risk of disability than an accountant.  If your insurance covers disability or job loss, they may not cover your entire mortgage payment. Instead, they’ll cover a % that’s specified in your contract. Mortgage protection insurance is not the same thing as private mortgage insurance, which goes to the lender if you default on your mortgage, and does not have a specific benefit for you the borrower. Mortgage protection insurance, however, protects you as a borrower.

PROS

1. Very high acceptance rates. (most programs do not require a medical exam)There are very few reasons why an insurance provider would turn you down for mortgage protection insurance. While many people are counting on their life or disability insurance to cover these costs, some people have trouble getting life insurance because of their age or pre-existing medical conditions. If you’re in this scenario, then mortgage protection insurance can be your best option to protect your family’s standard of living.

2. Peace of mind. As with any insurance policy, you never really know if you will ever use the insurance. But the safety net of insurance provides peace of mind. Some people go to work every day wondering what will happen to their home if they lose their job or become disabled. With the right mortgage protection insurance, you don’t have to stress and you’ll know that your payments will be made.

CONS

1. Maximum payment limitations. If you lose your job, your policy will not provide a sum of money equal to your normal monthly wages. Instead, how much you receive will be defined in your contract policy as a set amount or percentage. This may not seem entirely fair at first, but insurance companies place this limit to motivate a quick return to work.

2. Balancing your budget. If you have a very low mortgage payment, mortgage protection insurance may not be worth the commitment for you. Conservative investing in an emergency fund can give you enough of a cushion to make your monthly payments during unemployment or a disability. Maintaining an emergency fund - about 3-6 months salary – is your way to make sure you can stay up to date on your payments without surrendering the monthly premium to an insurance company.

THE VERDICT

           If you have a risky job or health concerns that make life insurance or disability insurance difficult to obtain, you should look into your options in mortgage protection insurance policies. Make sure you take the time to shop around before making a final decision – you need to know the details of the policy before you commit. Questions to ask include what the policy covers, the monthly cost, the payout you can expect, when the policy would pay out, and any other features that are important to you and your family. Have you used mortgage protection insurance? How did it work out for you? If you don’t carry mortgage protection insurance, what’s your backup plan?

Source: Brian McFedries/HelpHousing.realtytimes.com

 

Comments (1)

Malendaz Coleman
FLAT MLS LISTING SERVICES - Port Charlotte, FL
FLAT FEE MLS LISTING SERVICES - LIST LOW AS $69.00

Thanks brain for the great tips. 

Jul 23, 2014 03:05 AM