We all dream about a home of our own and purchase one when we can afford to pay off the home loan. However, we often overlook the inclusive risk factor of opting for a home loan. If a home loan is not paid within our lifetime or in case of our sudden demise, the loan would have to be paid by our beloved family members. They would have to deal with complex financial burdens in their tough time.
Here comes the valuable help of mortgage protection insurance. If a loan borrower dies before finishing the payment of the entire loan, the insurance company would pay off the remaining loans for you. Mortgage insurance is also known as mortgage protection insurance is designed specifically to offer financial support for the family members of the borrowers. The following section of the article aims to provide a detailed guide on every aspect of mortgage insurance.
What Is Mortgage Protection Insurance?
Mortgage protection insurance is an insurance policy wherein the loan provider would automatically receive the remaining loan if you die before the loan paying term is over. Mortgage protection policies are solely designed for the purpose of paying off mortgage debt only unlike other standard life insurance policies. In standard life insurance the family members have the liberty to use the amount of death benefits as they wish.
On the other hand, it is also different from Private Mortgage Insurance PMI. PMI is designed to provide protection to loan lenders by paying them the amount you fail to pay them. In most cases if a borrower fails to make a down payment of above 20% PMI pays the full amount to the lenders. Mortgage insurance on the other hand, offers financial support only to family members.
Who can apply for Mortgage Insurance?
Well the answer is anyone. There is no qualification bar to avail mortgage insurance. It does not entail any medical exam or fulfilling written conditions. Even candidates with pre-existing health conditions are eligible for a mortgage life insurance. One of the key benefits of a mortgage life insurance policy is that you don’t need to wait a long period like in the case of other standard life insurance policies.
Advantages and Disadvantages of Mortgage Insurance
Before purchasing mortgage insurance you must be aware of the merits and demerits of it to make informed decisions. Here are some of the pros and cons of MLI.
Advantages
- Easy Availability: Anyone can apply for mortgage insurance without going through any medical test.
- Stress-free Experience: With the assurance of mortgage insurance you can enjoy your new house with a free mind. It eliminates the constant pressure of paying off the loan within stipulated time.
- Living Benefits: MLI also allows you to find someone who can pay a portion of your loan if you can’t pay the loan due to some reasons like health issues. However, this is not a guaranteed policy of all insurance issuers.
Disadvantages
- No Death Benefits: If you apply for mortgage life insurance your family becomes disqualified for death benefit which they could have used for other expenses.
- Reducing Coverage: The insurance coverage decreases with the amount of outstanding loan to be paid.
- Costly Purchase: Some life insurances are cheaper than mortgage life insurance based on your mortgage outstanding balance. Thus, you need to make a tough decision on what to choose.
Things Covered by Mortgage Protection Insurance
Mortgage protection insurance covers a range of things issued by mortgage companies or other separate insurance companies. Here are some of the things they cover.
Mortgage Pay Off
In mortgage pay off your family members do not need to leave the house and continue the ownership of the property for free without any issues. However, the premiums of mortgage insurance are usually higher than standard life insurance policies.
Provide Benefits within Your Lifetime
Mortgage insurance providers pay off the debt within the lifetime of the borrower’s case of medical issues or temporary unemployment of the borrowers. Thus, it provides a benefit of loan payment in emergency cases while you are alive.
Conclusion
Mortgage protection insurance is a great help for you and your family. It enables you to purchase your dream home without any pressure. After your demise your family members would automatically receive the outstanding loan amount to pay off the mortgage loan without losing the ownership of the house.
Apart from this, the insurance amount is a huge sum. If the whole amount is not required to pay off the home debts, then the remaining amount can be used by your family members for other purposes. Thus, it is recommended that while obtaining a quote review the terms and conditions thoroughly to make the best decision for your family.
