Mortgage protection insurance is a life insurance policy that pays off your mortgage if you die prematurely. Although it seemed logical for me to get some kind of coverage to pay off my mortgage in the event of my death, mortgage protection insurance wasn’t that coverage.
Mortgage protection insurance is a decreasing term life insurance policy. In other words, the death benefit on the policy is designed to go down over time along with your mortgage balance.
Your monthly premium, on the other hand, stays the same throughout the life of the policy.
In some cases, mortgage protection insurance also can provide coverage if you become disabled. However, this type of policy is less common.
Typically, it isn’t your lender that will offer to sell you mortgage protection insurance. Rather, the lender sells your information to insurance companies that specialize in selling that kind of policy.
Mortgage protection insurance is often “guaranteed acceptance,” which means you don’t have to take a medical exam and won’t be denied for having a shaky health profile.
If you have major health problems and can’t qualify for a normal term life insurance policy, mortgage protection insurance might be worth considering.
If you’re in this situation, consider the cost of a mortgage protection insurance policy versus the cost of your family losing the home if you die. The potential risk likely will be too great to take on without some sort of mortgage protection insurance.
Fortunately, I didn’t need to buy more life insurance to cover our mortgage because I’d purchased a big enough policy when I was young and healthy.
But if you’re a new homeowner and don’t have life insurance, now is a good time to get some.
The best alternative is a simple level term life insurance policy, which offers consistent premiums throughout the life of the policy and no decreases in your coverage.
That means your family members will get more value and the flexibility to use the funds how they see fit. If they want to pay off the mortgage in full, they can. If they want to make monthly payments and use some of the cash for other needs, they can do that instead.
Although mortgage protection insurance letters create a sense of urgency, take a step back and consider the big picture before signing up for a policy. Shop around and compare insurance rates from several life insurance companies.
Also consider what else you want your life insurance policy to cover in case something bad happens to you. By taking into account your whole financial plan, you’ll know exactly what kind of policy you need to buy so your family has the protection it needs.