A home is often a purchase that is made once in a lifetime and involves you having to make regular mortgage payments every month for periods that can be as long as 30 years. It will often be the largest source of debt that can burden your finances and keep you always worried about your sources of income to meet this obligation.
Mortgage protection insurance is a form of life insurance that can ensure that your mortgage will continue to be paid even in case you die before the mortgage is paid. It acts as an ultimate safety net that protects your family and ensures they will never be deprived of their homes. In this form of insurance you by a policy for the amount of your mortgage and pay the regular premiums, and once the term is over, the policy ends. Death during the term of the policy will result in the payment being made to your beneficiaries.
Mortgage protection does differ from other life policies. In most cases, the company or lender who has given you the mortgage amount will be the beneficiaries of the policy and enables them to recover the loaned amount from this insurance policy. Mortgage balances will reduce as mortgage payments are regularly made, so the death benefit of the policy also changes to cover the mortgage amount that is remaining.
Mortgages are one of the biggest debts that persons can incur and the mortgage protection insurance specifically addresses this debt. You can always opt instead for a life insurance policy that covers this amount and goes directly to your family, but in case you die and they get their benefits they would have to take responsibility for allocating it properly. This guesswork is no more necessary if you have mortgage protection insurance. It is always matched to the mortgage balance and thus there will always be an amount that can cover your mortgage.
This form of insurance is different from the private mortgage insurance that many lenders will insist on, especially if your down payment for a home is less than 20 %. This private mortgage insurance only protects the lender when you default on mortgage payments and will in no way protect your family if you die. That is why it is important that you either have a proper life insurance policy or a mortgage protection insurance policy to take care of the payments in case you die. A life insurance policy must be for an amount greater than your mortgage amount. The advantage here is that in case you die, your family can still pay for the home for the balance amount remaining and will still have some sum left over for their needs. Your decision about the type of policy you should take to protect your home and your family can depend on the extra burden that the premiums will require you to undertake.
Mortgage protection insurance is rather narrow in scope. A regular life insurance policy will allow you to cover your mortgage amount and more. Mortgage protection insurance will allow you to cover your mortgage payments, but as they are often more expensive than standard insurance policies, it can severely affect your finances and ability to meet regular premiums as well as the mortgage payments. Life insurance premiums can be paid for the entire life and are therefore lower than mortgage insurance which is for a limited term.
One advantage is that most of the policies do not require any medical exam, as would be required for life insurance, and this can be an advantage if you do have some health issues. Your family will continue to have a home even when you die or are not able to work because you have become incapacitated. This makes this policy more versatile than a life insurance policy.
Mortgage protection insurance premiums are at a fixed rate while the payout follows the mortgage. So the value of the policy will reduce over time, as you will have paid the mortgage monthly payments to the lender. You can get newer policies where premiums can reduce over time, but you need to be careful when you take the policy and understand its terms. Mortgage protection insurance benefits the lenders and can at times help you to get better terms for your mortgage. The only benefit that comes to your family is that in case you die, they do not have to worry about making any further payments and are assured that the house has been fully paid for and they become the owners.
Many of these policies allow you to convert the policy into a life insurance policy if you have paid off the mortgage. Others may return your premiums if you have never filed a claim. However, with time and inflation, the value of this amount will have eroded. This form of insurance is of advantage to those who find it difficult to qualify for regular life insurance.
Most of these insurance policies for mortgage protection cannot be availed of after a certain age or will offer shorter term policies that will then have increased premiums. It can, therefore, be better if you simply buy more life insurance using the premiums you intended to pay for the mortgage protection insurance. You will get far bigger amounts that can go further to ensuring that your family, in case of your death, are never left in financial difficulties.