Mortgage Protection Insurance Offers Limited Benefits

April 3, 2007

Mortgage protection insurance is as simple as this – you pay a non-changing premium for the duration of your life insurance policy, and if you die, the insurance pays off the rest of your mortgage. The lender becomes the beneficiary if and only if the loan gets defaulted from the borrower who is paying for coverage. Now the question is, is mortgage protection insurance for you?

How mortgage protection insurance works
Mortgage protection insurance can be purchased right when you buy a home, or later on if you feel the necessity to buy it. Your age, smoking status and value of your death benefits (the amount left on your mortgage) are taken into account when being reviewed by an insurance agency.

If your outstanding mortgage is high, your premium will be high as well, and even as you pay your mortgage down, your premium will remain the same. This is because your life insurance company is keeping your decreasing death benefits in mind.

One way to help your family receive a little extra in the event of your death is to make extra payments on your mortgage. By doing so, the death benefits will be the amount your mortgage would have been, had you been making the standard-required payments. This helps your family in that after the mortgage is paid off, they may receive the remainder of your death benefits.

Keep in mind when considering mortgage protection insurance that when your death benefits pay out, they only cover the cost of your mortgage (or maybe a little more if you paid ahead). If you want to give your beneficiaries a little more flexibility with your death benefits, it would be wise to look at a term-life insurance policy.

A couple things to look for
Depending on your insurance company, a joint mortgage protection insurance may be available that covers both you and your spouse and pays out when either of you die.

If you refinance, see if reissuing your policy will get you a better premium.

If you default on your mortgage, check with your life insurance company and see if they will extend your coverage.

Mortgage Protection Insurance vs. Private Mortgage Insurance
Though similar in names, these two insurances are different in features. Private mortgage insurance (PMI) is almost always required when you purchase a house and put less than 20% down. “Lenders take a risk when a buyer puts down less than 20%,”says David Roush, CEO of Insurance.com. “Private Mortgage Insurance is a way for lenders to protect themselves in case of a foreclosure.”

Though PMI makes it easier for you to get a loan and puts you in a house quicker, it only covers a portion of the loan if you default. It should not be viewed as a substitution for life insurance or mortgage protection insurance, which will pay off all or most of your mortgage in the event of your death, so you know your family will be covered.

If you are interested in getting life insurance quotes, log on to Insurance.com. Here you will be able to evaluate multiple rates from best-in-class life insurance providers – helping you find the best life insurance coverage for you and your family.