Insurance is considered a means to manage the risks associated with future uncertainties. Mortgage protection insurance is basically a type of insurance that enables you to meet your mortgage payments, in the case of potential financial disasters. Economic uncertainties, as well as death, a critical illness, or an accident are certain conditions, which may render a person unable to meet his or her mortgage payments.
A mortgage protection insurance policy can help protect your mortgage or home, if you fail to maintain the regular mortgage payments due to such reasons. So, this insurance is basically purchased by the homeowners to maintain their mortgage payments, if they could not earn for a period of time due to unemployment, illnesses, or accidents. Such an insurance policy requires the purchaser to pay a monthly premium, and in return, it provides an income to make the mortgage payments. However, there are certain criteria that need to be fulfilled to get such an insurance policy.
Is it Similar to Private Mortgage Insurance?
Though both the names sound very similar, they are actually quite different policies. Private mortgage insurance (PMI) is the insurance that the lenders usually require you to buy, if you pay less than 20% down payment on the mortgage (your home). This insurance provides protection to the lender against a financial loss, if the borrower defaults on the loan. In other words, if the borrower fails to meet the repayment obligation, the insurance company pays off a portion of the loan to the lender. So, a private mortgage insurance policy pays the lender or protects the lender against a financial loss, but does not make any mortgage payments to the borrower or his or her family.
Why Do We Need Mortgage Protection Insurance?
Mortgage protection or mortgage payment protection is a solution for those who have certain reservations regarding the repayment of the loan, especially in the event of unemployment, death, and disability. Such insurance policies are typically designed to provide you a monthly income to meet your mortgage payments, if you fail to earn due to the aforementioned reasons.
Some policies even agree to pay you if you are forced to leave work, while others can allow you to choose from a number of redundancy insurance options. For example, some insurance companies can allow you to choose one option from the accident, sickness, and unemployment coverage. In the event of death, the insurance company pays off the remaining mortgage. On the other hand, a mortgage payment protection insurance policy can pay you for 12 to 24 months, in order to meet your mortgage payments, if you become unemployed or suffer from a serious illness.
Cost of the Insurance
The cost of this insurance depends on many factors. Usually, if your outstanding balance of the mortgage is high, you can expect higher rates. The premium or the rate of this insurance policy is likely to remain same, even if the outstanding balance decreases over time. This is because, the risk of death increases with advancing age.
Such an insurance policy can consider your age, overall health condition, and even factors like whether you smoke, while calculating the price or the premium. Some insurance companies may require you to take a physical examination before confirming your eligibility. The type and the amount of coverage that you opt for can also affect the price of the policy.
Some insurance policies can provide joint coverage for you and your spouse. Such policies provide death benefits for you and your spouse. To sum up, there are several different types of mortgage protection insurance policies, such as mortgage life insurance, mortgage unemployment insurance, and mortgage disability insurance. You can go through the reviews of various policies, in order to find out the one that can meet your requirements.