Life couldn’t be greater. Your significant other recently landed a high-paying job. And in a few weeks, you’ll be closing on your dream home. Fast forward a few years and along comes the kids, car payments, student loans, maxed out credit cards and a host of other expenses. With two incomes rolling in, you have enough to make ends meet, but money’s tight.
Then out of the blue, the unthinkable happens. Your significant other’s life is cut short and you’re left to pick up the pieces. The life insurance proceeds barely cover final expenses and the mounting debt.
Luckily, your significant other purchased a mortgage protection insurance policy years ago. So, you won’t be at risk for losing your home. Whew!
What is Mortgage Protection Insurance
This grim scenario is the sad reality for many overextended couples and individuals. But those who have mortgage protection insurance, the mortgage payment is one less thing relatives have to worry about. When the homeowner dies, the policy pays out to the beneficiary. Oftentimes, the beneficiary is the bank. But either way, the outstanding balance on the loan gets paid in full.
Benefits of Mortgage Protection Insurance
1. Peace of Mind
Are you terminally ill or employed in a dangerous line of work? If so, you know more than most that tomorrow’s not promised. Otherwise, you probably aren’t expecting your life to be at risk anytime soon. But what if that’s not the case? Will your family be able to pay off or at least keep up with the mortgage payments? Whether you’re the sole breadwinner or live in a two income household, mortgage protection insurance can give you a peace of mind.
2. Minimal Underwriting
Do you suffer from a chronic or debilitating medical condition? Select medical issues will prevent you from purchasing standard life insurance. But most insurance providers will sell you a policy with no medical exam and minimal underwriting.
3. Your Family Can Keep the Home
In some instances, relatives will want to sell the home to cover final expenses, estate taxes, etc. But what if your significant other and dependents are still living in the home? This scenario may warrant the purchase of mortgage protection insurance.
Drawbacks of Mortgage Protection Insurance
1. Declining Value
The value of mortgage protection insurance policies decline over time as you pay on the home. But premiums don’t always follow suit. And unlike permanent life insurance, these policies don’t accumulate cash value.
2. More Costly Than Term Life Insurance
Depending on your age and health, permanent life insurance may be quite costly. But term life insurance premiums are usually cheaper than mortgage protection insurance.
What happens if you sell your home or cancel the policy? Unless your policy contains a return on premium clause, don’t expect a payout at the end of the policy term. And no, you can’t transfer the policy to the new owner.
Is Mortgage Protection Insurance Worth the Investment?
It depends on your situation. If you can secure a term life insurance policy at or above the value of your home at a competitive rate, go for it. This allows your beneficiaries to receive the proceeds and allocate them by need. Plus, the value of the policy won’t decline over time.
But if term life insurance is not an option, a mortgage protection insurance policy may be a good investment.
Written By: Allison Martin
Special For: Easy.Credit