Mortgage Protection Insurance

Mortgage Protection Insurance, also referred to as “mortgage protection life insurance” can help your family cover your mortgage under certain circumstances. It is a life insurance policy that helps your family make your monthly note payments if the policyholder/mortgage borrower dies before the mortgage is fully paid off. Some policies offer disability income, critical & chronic illness, and return of premium riders in addition to the policy’s death benefit, depending on the carrier. Some mortgage companies and banks will request that you list them as the beneficiary, also known as collateral assignment, to make sure they are paid in the event you pass away. While this might seem like a great idea, it is not. Majority of policies today are level benefit policies, meaning that the death benefit does not decrease during the life of the policy. So, if your loan is paid down from $200,000 to $150,000, the policy benefit will still be $200,000 in the event of your death. If the loan or bank is the beneficiary of the policy, they will not only receive the monthly note you will be paying for your loan, but also a lump sum of $200,000 on top of that if you pass away. So, if you pay your loan down to $150,000 and you pass away, the bank or mortgage company will have received the $50,000 from your mortgage note payments and will be paid the $200,000 death benefit from your policy. This route makes the bank or mortgage company a much larger profit in the event you pass away. The better option is to list your spouse or guardian for your children, in the event of your death, who will continue living in the house and will need funds to pay off the loan. Anything extra is cash that can be used however the beneficiary chooses.

Most people assume the coverage they have through their job or their current amount of life insurance, outside of work, is enough to cover their current loans. While sometimes that is the case, other times people have not considered all the other possible expenses and financial emergencies that could occur in the event of their death. This is where reevaluating your current life insurance policies and considering setting up an additional policy for mortgage protection may be very beneficial. And in some cases, if there is enough life insurance in place, you will still need to fill in the gaps with living benefit riders, or supplemental health insurance policies such as standalone critical illness, disability income, healthcare indemnity, or accident & hospital indemnity plans.