The phrase “mortgage protection insurance” can be a little confusing. There are actually two forms of this coverage, but not all policies are necessarily “mortgage protection.” One type is all about eliminating the risk of death for the policy holder, and the other protects your family from losing their home if they should become ill. So what is mortgage protection insurance? In order to answer that question, you will first need to understand how it works.
How does a mortgage protection insurance policy to protect your family? Suppose you are the policy holder and you suddenly become ill and/or pass away. What would happen to your mortgage? Would your outstanding mortgage balance remain untouched even though you were no longer able to make mortgage payments? Or would your beneficiaries (your children or spouse) are left with no financial means to pay your debt balance? If so, mortgage protection insurance coverage could save your family’s financial future.
The primary reason to purchase mortgage protection insurance is to protect the future of your family in the event you should become ill and not be able to make a mortgage or other types of payment obligations. You may want to get this coverage because you have an older sibling that has a serious medical condition that could potentially result in death. If you have a major medical bill that completely wipes out your bank account, you could be a candidate for this type of life insurance policy. Of course, you will still need life insurance to pay your other bills, but your policy will give you peace of mind in the event that something happens to you.
Some mortgage insurance policies provide for “xia” protection. Basically, this is a contingency plan in which the insurance company will assume the entire risk of you dying. You will get your death benefits, but the payments will come from the life insurance company, not from the bank. Typically, a large number of people do not purchase these kinds of protection policies, but they can provide peace of mind and help you to keep your property and other belongings safe in case you are unable to make mortgage payments.
Mortgage protection can also protect you from losing your home if your lender adjusts your loan-to-value ratio. In essence, if your lender raises the interest rate one point, then you could lose your home because the payment you are paying on your house could be greater than the value of your mortgage. Many lenders adjust the loan-to-value ratio for a number of reasons, including changing market conditions, reducing investments in sub-prime mortgages, and wanting to make sure that payments are made according to your income.
Many life insurance policies provide coverage for a certain amount of time after your death. These mortgage life and disability insurance policies will pay out your remaining mortgage life and adjust the terms of your disability insurance policy. Many times, when you first purchase mortgage life or disability insurance policies, you will be able to take advantage of a lifetime premium and pay only a percentage of the premiums, saving money in the long run. While you may not be able to get a 100% premium reduction, as you age, this could save you a considerable sum of money over time.