Mortgage protection insurance is a type of insurance coverage that pays your mortgage for you in the event of some unexpected occurrence. This policy could pay out if you die, lose your job or become disabled. This is different from a traditional life insurance policy and it can provide you with some different benefits.
The purpose of mortgage protection insurance is to protect you in the event that you are unable to pay your mortgage. This is not the same thing as the private mortgage insurance that is required by your lender. This is an optional type of coverage that you could purchase to protect your family and yourself in the event that you are unable to pay your mortgage. The insurance company generally pays your mortgage lender directly if you cannot pay because of a covered event.
Mortgage protection insurance could provide you with coverage even if you are in poor health. If you are unable to qualify for traditional life insurance, this kind of insurance can protect your family from the mortgage bill if you die. It can also be beneficial to have if you work in an industry that has high turnover. This way, if you lose your job, your mortgage can still be paid.
Even though mortgage protection insurance can be beneficial, there are a few potential drawbacks to consider as well. For example, this type of insurance has a declining benefits as you get further along in your contract term. As you pay down the mortgage balance, the insurance becomes less valuable. Another drawback is that you are paying premiums for an insurance policy that only pays off your mortgage. You might be better off to use that money to increase your life insurance payout so that your family can decide what to do with the money when you die.
This kind of insurance could make different types of payments depending on your situation. If you die with a mortgage balance, the mortgage protection insurance company will make a direct payment to your mortgage lender for the entire balance of the loan. If you are temporarily disabled, the insurance company may make monthly payments for you until you recover and go back to work. You do not automatically get your mortgage paid off if you are only disabled for a short time.
While this type of insurance works for some, it is not for everyone. If you work in a high-risk industry and cannot get disability insurance, this type of coverage can work your advantage. If you have some type of health issue that prevents you from getting life insurance, this coverage can help. Those who do not owe any money on their home should not buy this insurance. If you already have a large life insurance policy, this might be excessive coverage.