Since buying a home is probably the biggest investment you will ever make, you may want to consider getting mortgage protection to safeguard your valuable asset.
Mortgage Protection for Families
Families who depend on one person's salary to cover their monthly mortgage payment might want to look into mortgage protection. If the primary earner in the family dies, this protection will pay off the remaining balance on the mortgage. This can help ease financial troubles at an emotional time when paying bills should be the last thing on a person's mind.
One of the best things about mortgage protection is that initiating a policy can be done at any time. You may want to sign up for the insurance when you purchase your home, or you can wait and add it later if your financial situation changes. This is often a good idea for families who buy a home based on two salaries but later lose an income if one of the spouses leaves the workforce, or if the family's growth puts a strain on the finances.
Insurance vs. PMI
Many people confuse mortgage protection with private mortgage insurance. PMI allows home buyers to purchase a home with less than the typical down payment of at least 20 percent. By allowing buyers to make a lower down payment, the mortgage lender is taking a bigger risk on their investment. To protect themselves, they usually require that the buyer pays for PMI in addition to their mortgage payment.
PMI can be likened to a type of foreclosire insurance; the lender takes out a policy on the borrower which will protect the lender if the borrower defaults on the loan. This is extra coverage that only protects the lender: there is no benefit to the homeowner and this insurance does not help pay for the mortgage in the event of a death.
Mortgage protection, on the other hand, is simply an insurance policy that pays off the mortgage in the event of the policy holder's death. The borrower's family benefits from it rather than your lender.
There are two mains ways people can purchase mortgage protection: Life Insurance Many families simply use their life insurance policy to cover any outstanding mortgage payments in case a family member dies. Monthly life insurance payments are based on the policy holder's health and the family's overall financial needs, so the total payment may be for much more than the amount of the mortgage. Most people use term life insurance for this purpose. Mortgage Protection InsuranceThese policies only cover the mortgage on the home. This insurance also considers the health of the policy holder and closely examines how much money would be needed to pay off a mortgage. The downside is that this only covers the house, so people may want to additionally get a life insurance policy to cover other financial obligations. Policy holders who make extra principal payments may be entitled to getting that money back after the mortgage protection pays the rest. Many life insurance policies will not cover an amount less than $100,000 so if a mortgage is below that threshold mortgage protection may be the best option.
Many companies that offer life insurance also have policies for mortgage protection. A good place to start is with the company the borrower uses for homeowners' insurance since the company will already have an understanding of the home's value. Banks and mortgage companies that offer insurance policies are also good places to look into.
Potential policy holders will need to have a health screening done as part of the application process. In many cases, this can be completed at a local physician's office or a nurse may come to the applicant's home. The insurance company will need to know the applicant's medical history and current conditions, whether or not the applicant smokes, and they may also take a blood sample.
Although adding another monthly payment may dissuade some people, the peace of mind and financial assistance of mortgage protection may make it worthwhile.