Find Out If You Need Mortgage Protection Insurance
Having a mortgage is one of your biggest responsibilities. Falling behind on your mortgage can lead to paying more interest, late fees, foreclosure proceedings, and even losing your home. Mortgage Protection Insurance (MPI) is a way to protect your family and your investment if the unthinkable happens.
MPI is a type of life insurance that offers a dual benefit to help your family with a mortgage in the event of death. Similar to a regular life insurance policy, you pay a premium with the understanding that your loved ones will receive a death benefit when you die.
“Mortgage protection and life insurance are the same but they are marketed differently,” said Doug Mitchell, owner of Ogletree Financial in Auburn, AL.
- 1 Mortgage Protection Insurance
- 1.1 What does mortgage insurance cover?
- 1.2 Affordable Mortgage Life Insurance Options
- 1.3 Level Term Mortgage Life Insurance
- 1.4 Mortgage Insurance Premium Refund
- 1.5 Mortgage life insurance through riders
- 1.6 Who may want mortgage insurance
- 1.7 Mortgage payment insurance exclusions
- 1.8 FAQ of Mortgage Insurance
Mortgage Protection Insurance
The difference is that mortgage insurance is related to your mortgage. Suppose a homeowner has 15 years left on a $ 250,000 mortgage. The person can purchase a PMI policy during the life of that mortgage that will help pay part or all of the mortgage if that person dies.
What does mortgage insurance cover?
Mortgage insurance helps pay part or all of your mortgage in the event of death. Depending on the policy, the mortgage insurance can pay the entire mortgage, part of it, or for a period, such as five years. The longer the duration and size of the reward, the more likely you will pay for protection.
Andy Albright, president and CEO of the National Agents Alliance, said mortgage protection insurance has evolved. It used to be that your death benefit would be the outstanding balance on your mortgage. Today, companies design most mortgage insurance policies to pay the full amount of your original mortgage, no matter how much you owe. The beneficiary can use the remaining money for anything.
If you pay off your mortgage early, you keep coverage until the term of your policy expires. Some insurers will allow you to convert that mortgage insurance into a life insurance policy, Albright says.
You can also add riders to help with life benefits. These benefits could include help paying your mortgage if you become disabled and cannot work or lose your job.
For example, you can add a long-term disability rider that pays up to 60% of your income to help with your bills if you become disabled and cannot work. Adding riders generally increases your premiums. However, passengers can help you customize a policy that works for you.
Affordable Mortgage Life Insurance Options
There are a number of different ways to make sure your family doesn’t have to struggle to make mortgage payments or face foreclosure in case something happens to you. There are several different types of life insurance that work well as mortgage life insurance, but the best and most affordable type of life insurance for this purpose is term life insurance and term life insurance with premium return.
When the concept of AARP mortgage life insurance was first introduced, most agents recommended using declining term life insurance because your death benefit decreased each year as your mortgage balance decreased.
However, as term insurance became very competitive and so affordable, declining term policies fell by the wayside because the savings between the decreasing term and the fixed term were not enough to make it a viable option.
Level Term Mortgage Life Insurance
Most people are now opting for traditional level term life insurance policies that match their home loan repayment schedule. With this type of policy, coverage remains in effect until the policy term is completed. At the end of the term, the coverage simply expires.
It is also important to note that the insurance coverage follows the insured person, not the mortgage that the insurance covers.
This means that if you have a $ 500,000 30-year term policy to cover your mortgage and then move to a more expensive home, you can simply purchase additional term insurance to make up the difference in mortgage amounts.
Mortgage Insurance Premium Refund
Many people choose return-of-premium life insurance over traditional term life insurance options when implementing mortgage protection insurance. This type of insurance has higher premiums than term coverage, but it offers a distinct advantage.
With a return-of-premium life insurance policy, if the policy remains in force for the entire term, the premiums you paid are returned. This does not mean that you must survive your mortgage, it means that you must survive your term insurance policy that was purchased to pay off the mortgage.
Mortgage payment in the event of death is often the main reason people buy life insurance today. With lower term life premiums and the introduction of return-of-premium term life insurance, consumers now have several options for mortgage protection.
Mortgage life insurance through riders
If you want to get more out of your insurance policy than just the death benefit, most companies offer a number of riders that can be added to your AARP mortgage life insurance protection insurance to expand your coverage and add life benefits. Depending on the company you choose, you can choose from the following passengers:
Accidental Death Benefit: This rider provides for the insurer to pay a higher death benefit if the cause of your death is the result of an accident.
- Guaranteed Insurability Rider: The Guaranteed Insurability Rider allows the insured to increase their insurance coverage at a later date without having to prove their insurability (without medical examination). This is a logical purchase clause, as most homeowners live in a home for around 7 years on average and then sell and move to a larger home to accommodate a growing family.
- Accelerated Death Benefit – This rider adds living benefits to your term insurance policy. If the insured is diagnosed with a covered critical or terminal illness that will significantly shorten their useful life, the insurance company will advance the insured a significant portion of the death benefit to cover medical costs.
- Disability Income Rider – This valuable rider also adds living benefits to your mortgage life insurance. The annex provides that the insurer pays a monthly benefit to the insured if he becomes disabled and can no longer work. Some companies will also waive the premium payment during your disability.
- Long-term care rider: In the event that the insured must stay in a nursing home or receive long-term home care, this rider offers monthly payments while the insured is cared for.
- Premium Refund Rider: As mentioned above, this rider provides for the insurance company to return a balloon payment to the insured who survives the insurance policy. This return of the premium is tax-free and can be reinvested or spent as desired by the insured.
Get the best rates on your insurance policy using our instant online life insurance quote tool.
Who may want mortgage insurance
Anyone with a mortgage balance could benefit from mortgage insurance.
“My advice is to buy life insurance to cover the mortgage in the event that one of the owners dies prematurely. Don’t just buy an amount of life insurance equal to the amount of the mortgage; it probably has other financial bases to cover, ”Mitchell said.
Shanbrom said MPI can also help people who are dependent on the main ticket holder. If that person dies and cannot make the payments, “it could affect the balance of the home and make it difficult for those inside to return to work.”
Necole Gibbs, a licensed independent agent for TNG Insurance and Financial Services, said that mortgage insurance is an especially good idea for young couples with children.
“If something happened to either of you during the period, the surviving spouse would receive the death benefit and then they could pay the mortgage,” Gibbs said.
If you are concerned about losing money through premiums, you can choose a premium return policy. Those policies, which can be expensive, pay back your premiums if you outlive your mortgage insurance. Gibbs said these policies are returned as a lump sum at the end of the policy term.
“This is a great strategy because if nothing happens to the couple during the period,” Gibbs said.
MPI is also an option if you don’t want to take a medical exam to purchase a regular term life insurance policy. Some insurers do not require an exam for an MPI policy.
“Open the window to getting life insurance without going through all the hurdles,” says Albright.
Mortgage payment insurance exclusions
Companies can include mortgage insurance exclusions for health problems. You may be prevented from obtaining a policy if:
● An older citizen
● You have a medical condition such as heart problems and cancer.
● permanently disabled
“That is why it is crucial to get coverage as soon as a mortgage is purchased, since it is impossible to determine when a person’s health may deteriorate,” Shanbrom said.
FAQ of Mortgage Insurance
What happens when the death benefit is greater than the mortgage?
If the insured dies during the term of the policy, the full death benefit will be paid to the beneficiary regardless of the mortgage balance.
Should a Husband and Spouse Buy Mortgage Life Insurance?
If your family relies on the income of both spouses to pay the mortgage payment, both spouses should definitely purchase private mortgage life insurance.
How much more is the return on premium mortgage life insurance?
The additional premium charged for the premium return option depends on the age of the applicant and the amount of insurance purchased. Typically it will cost an additional 25% to 40%.
Does term mortgage insurance have a conversion option?
Depending on the company you select, most term policies have a conversion option that allows you to convert your term policy to a permanent policy without the requirement of a medical exam.
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