What is Mortgage Protection Insurance?
Mortgage protection is a specialized life insurance policy that pays off your mortgage for a spouse or partner when you die. Mortgage protection policies are non-medical (no medical exam required) that often include other benefits that cover disability, unemployment, critical illness, and terminal illness.
Most people do not have adequate life insurance coverage, and when they die, their loved ones are forced to move out of the home or let the home go into foreclosure shortly after the death of a loved one.
Families work their entire lives to purchase, maintain, and improve the most expensive asset they have – their home. And yet, when a loved one dies, those left behind find out quickly they never owned it in the first place…the bank owned it…they were merely renting it.
If you recently purchased or refinanced your home and received mortgage protection letters in the mail, this article will help you understand your mortgage protection options.
Why do I need mortgage protection insurance?
The answer to this question is simple – if you have a home mortgage and family members who financially depend on you, then you need mortgage protection insurance or adequate life insurance; we can help you with both types of coverage!
When a household income provider passes away, mortgage protection insurance will help protect your family from a catastrophic financial hardship and protect your home from going into foreclosure. Mortgage protection insurance is designed to pay off your entire home loan, pay off a portion of your home loan, or even help you make regular mortgage payments when a loved one dies.
If you love your spouse, partner, and family, you will want to make sure they can keep the home after your death. Having mortgage protection assures your loved ones can stay in your home after your death. Losing a loved one is traumatic enough, without adding the additional trauma of losing the home you have been living in for many years.
Every adult we know has lost a loved one, and it was always a surprise. None envisioned one year, three years, five years, or 10 years earlier that a friend, relative, or loved one would die unexpectedly. It happens every day, and families are torn out of their homes and communities when they can’t pay their mortgages. Mortgage protection prevents this from happening.
Is mortgage protection insurance mandatory?
It is not mandatory; however, we do recommend it as it is not uncommon for us to get calls from people we have visited or talked with in the past about mortgage protection insurance.
The call often goes like this “My (insert relationship) died a short time ago, and we were going through their belongings and found your information…we were hoping they had purchased some mortgage protection insurance…do you know if they did?”
They found our business card or contact information while going through their loved one’s belongings or computer records, and they hoped the person now deceased had purchased mortgage protection insurance for their home.
We also get calls occasionally from people we have talked with before, but they declined to get mortgage protection insurance.
They have recently developed a serious illness or life-threatening disease (such as cancer), and they want to see if they can get insurance now. The answer is usually “no.”
The best time to get mortgage insurance is when you are healthy. Don’t make the mistake of waiting until you become uninsurable to apply for coverage.
I already have life insurance; do I also need mortgage protection insurance?
If you already have adequate life insurance, you may not need mortgage protection insurance. Most people we talk with do not have adequate life insurance, so mortgage protection insurance is a perfect fit for them.
If you’re not sure what is the right fit for you, call us, and we can help you understand your best option. We can help you with mortgage protection insurance or life insurance.
Insurance companies frequently offer new insurance products that offer better coverage or more forgiving underwriting procedures. If there’s a better option for you that will save you money or get you more coverage, we will find it for you!
I already have employer-provided life insurance; do I need mortgage protection insurance?
We love that employers give you free life insurance as part of your benefits package. You want to take advantage of this benefit. Most employers, however, do not offer enough life insurance coverage to replace your income in the years following your death and pay off your mortgage.
People are changing employers every 4 to 6 years, according to current employment statistics. You don’t get to take your health benefits with you when you change jobs, and you don’t get to take your company provided life insurance with you when you change jobs.
If your health has changed since the last time you were hired, you may be uninsurable. That’s why owning your mortgage protection insurance or life insurance is so important.
We love employer-provided life insurance, but we typically ignore it when looking at something as important as protecting your home mortgage.
When you purchase your own mortgage protection insurance policy, you are in 100% control of your insurance coverage. As long as you continue to make your monthly insurance payments, it won’t matter if you change jobs, get sick, get downsized, outsourced, get fired, etc. Your mortgage protection insurance will stay with you everywhere you go.
My spouse or partner is on my home loan; do we each need a mortgage protection policy?
Is highly recommended that you do. Mortgage protection insurance is issued and approved individually. If two or more persons are listed on your home loan or mortgage, you should each have a personal mortgage protection insurance policy. This provides necessary financial protection to each of you.
Who gets the money when I die?
Not your bank or lender!!!
With the old style of mortgage protection insurance, the insurance proceeds went directly to the bank; you had no control over your insurance funds.
Newer mortgage protection insurance policies allow you to choose the beneficiary. You decide where the insurance money (the “death benefit”) goes. Typically, the death benefit would go to a spouse, partner, children, charity, estate, or other options. You are in complete control of where the insurance money will go.
Is mortgage protection insurance the same as PMI (private mortgage insurance)?
No. PMI protects the bank if you default on your loan; it does not protect your family members. PMI money would go to the bank as part of the foreclosure process on your home. Private mortgage insurance is not mortgage protection insurance. Although they sound the same, they’re different.
PMI is an insurance policy that protects the lender if you fail to make the mortgage payments on your home. It also protects the bank if they repossess your home and have to sell it for less than the remaining balance you owe on your loan.
If you put down less than 20% on your home, the bank will automatically include PMI in your mortgage payments. If you buy a $100,000 home and only put down $10,000, you will have to pay PMI until your loan balance gets down to 80% (assuming your home value remains the same).
Why do banks require PMI if you put down less than 20%?
There once was a time when banks would not give you a loan under any circumstances unless you put down a large amount of money as a deposit…often 20% of the loan value.
With PMI, lenders are now willing to take on loans with low down payments, because the PMI assures they won’t lose money. By adding PMI to your loan, it makes it much easier for you to purchase a home with a less than 20% down payment.
Is mortgage protection insurance the same as homeowners insurance?
No. These two types of insurance protection are different. Homeowners insurance protects your home if it is damaged, property is stolen, or accidents occur in or around your home. Homeowners insurance does not protect your home when a spouse or partner passes away.
Mortgage protection insurance complements homeowners insurance. Homeowners insurance protects your home in case of fire, flood, theft, or any other damage. Mortgage protection insurance protects your home when a loved one passes away and their income is lost (making your mortgage payments unaffordable).
Is mortgage protection insurance the same as mortgage relief?
No. These are different financial products. Mortgage relief is a program that will help you reduce your monthly home loan payments, so you can afford to stay in your home.
Mortgage relief is used by people who can no longer afford their mortgage payments due to job loss. Mortgage relief differs from mortgage protection insurance.
Does my family have to use the mortgage protection insurance money to pay off the entire home mortgage?
No. Your family will have complete control over how to spend the money. Mortgage protection insurance is intended to protect your home in many situations. Most people use the insurance money to pay off the house, pay off a portion of the mortgage amount, or continue to make monthly mortgage payments.
I’ve heard about declining payout (decreasing term) mortgage protection insurance; can I get it?
It depends. These policies have become less attractive since the financial crisis in 2008 and 2009. They are rarely offered or used for mortgage protection anymore.
We specialize in insurance policies with level monthly payments and will pay a specific payout amount when you die. This “level death benefit” option assures your family will receive the full amount you insured for yourself and loved ones when you die.
What about the old kind of mortgage insurance my bank used to offer?
This mortgage protection is rarely offered anymore by lenders; it is the declining payout insurance mentioned above.
This old mortgage protection coverage was called the declining balance mortgage protection insurance. As your mortgage balance decreased, the life insurance balance within the mortgage protection also decreased at the same rate.
You would think this would save you money as the mortgage balance went down. You would think your premiums would also drop in relation to the decreasing mortgage balance; this is not the case.
For example: Let’s say you had one of these declining balance mortgage protection insurance policies and the premium was $75 a month. You would pay $75 a month, even as your balance dropped over the length of your loan, often for the full 30 years of your loan.
This mortgage protection was also attached to the loan. If you sold the home or refinanced your home, this mortgage protection would go away. So, if your health had changed significantly and you tried to get another mortgage protection policy, you might be ineligible for any new protection.
If my family doesn’t use our mortgage protection insurance, do I get the money back?
It is possible. You would have to select this option when you signed up for your mortgage protection insurance policy. This option is called “return of premium.” There are many options available if you are interested in a return of premium. Just ask us, and we will help you understand if this makes sense for you.
Will my family be taxed on the insurance money they receive?
No. The mortgage protection insurance your family receives as a “death benefit” will not be taxed; they will receive the full amount stated in the insurance policy, tax-free.
I have no dependents; do I still need mortgage protection insurance?
If you are a single homeowner with no one else living with you (spouse, partner, or children), a mortgage protection insurance policy will assure your home does not go into foreclosure in the months following your death. If you have not paid your mortgage payments for three months or more, your bank or lender will start the foreclosure process.
Most people have at least one family member who could benefit from the equity in their home. Perhaps some nieces and nephews for their college fund, a brother or sister to help them pay off their home, or parents struggling with retirement income. Your equity in your home would be a huge financial blessing for these people. You can provide them with a large financial benefit for an affordable monthly premium.
A small mortgage protection insurance policy will keep the payments current until your charity can sell your home and use the proceeds from your home to help others.
Some homes have sentimental value for you or extended family. Perhaps, the home has been in the family for generations. It may be an investment property that will grow rapidly in value. It may be a farm or lake property you would like to keep in your family.
There are many reasons protecting your home with mortgage protection insurance is important, other than just for the financial security of spouses, partners, and dependents.
Should I get a new mortgage protection policy if I refinance my mortgage?
No. If you change banks or mortgage lenders, you won’t have to change your mortgage protection insurance policy. Your monthly payments will remain the same. You own your mortgage protection insurance policy, and it is not attached or directly tied to your bank or lender.
If you purchase a more expensive home, we may recommend you keep your existing policy and purchase additional coverage as needed. Call us, and we can help you understand your options.
I already have mortgage protection insurance, but I want more.
Call us, and we will explain the options available to you. Your existing mortgage protection insurance policy is one you will likely want to keep. However, insurance companies introduce new products yearly, and we may get you a lower monthly premium or increase coverage with a new policy.
If your current insurance policy is the best option, we can always add additional coverage anytime.
If I buy a new home, do I need to buy new mortgage protection insurance?
No. The mortgage protection policy we will help you purchase is portable. It will protect the mortgage of any home you buy. If you buy a more expensive home, and your mortgage balance is higher than it was before, call us and see if raising your insurance coverage is the right option for your new home.
If your mortgage payments have increased, your family will need extra insurance protection.
When does my mortgage protection insurance end?
This is entirely up to you. Most people purchase mortgage protection insurance to cover the time they are paying their mortgage. It is not uncommon for people to have a 30-year mortgage and pay it off in 20 years. Here, a 20-year term mortgage protection policy would be appropriate.
Once your home is paid off, you can elect to cancel your mortgage protection insurance. If you want to keep this coverage or purchase additional coverage, call us, and we can help you understand your best options.
Will my monthly payments (insurance premiums) ever change?
No. Your premiums will stay the same the entire time you own your policy. If you cancel your policy and reapply later, your prices will not be locked in.
Keep your insurance coverage in force the entire time you own your home. If you stop making payments, you will have to reapply for another mortgage protection insurance policy.
If your age or health has changed, it will be more expensive than your original policy.
How much mortgage protection insurance can I buy?
Mortgage protection insurance is a specialized life insurance policy, so you can buy as much coverage as is appropriate; it’s up to you. Most people cover all or a portion of their mortgage amount. If you have additional debt you would like to pay off when the breadwinner passes away, we can help you apply for more than your mortgage amount.
The insurance companies will ultimately determine how much you qualify for, but we will help you understand what your options are to get you approved for the amount of coverage you want and need.
How much does mortgage protection life insurance cost?
This is the number one question we get! Until we know a little bit more about you, your age, and your health, our answer is always “it depends,” or “it’s up to you.”
The higher the amount you insure, the higher the monthly premium will be. The lower the amount you insure, the lower your monthly premium will be.
You can cover the full mortgage or a percentage of your mortgage. You have flexibility in determining your monthly premium. Mortgage protection insurance policies are typically smaller than life insurance policies, so the monthly premiums are affordable.
Can I get a mortgage protection insurance quote on the Internet, over the phone, or through email?
Yes! Most insurance companies and insurance agents will not do this over the phone. Our specialty is protecting people quickly, comfortably, and easily. You don’t have to have somebody come over to your home and use any high-pressure sales tactics to get you to purchase insurance!
Your personal information is 100% secure, and we specialize in getting you affordable mortgage protection insurance at the best pricing, with no hassle.
I was denied for life insurance in the past; can I qualify for mortgage protection insurance?
In almost every case, the answer is yes. It does, however, depend on the health issues you’ve had in the past and your current age. Mortgage protection insurance is easier to qualify for, so we should be able to get you some coverage.
If you were denied for life insurance in the past, call us, and we will explain your best options.
Can I purchase unemployment insurance, disability insurance, or critical insurance benefits with my mortgage protection policy?
You can buy additional coverage to protect many of these situations. Insurance companies differ in the benefits allowed within their insurance policies. Some plans include these benefits automatically, and some can be added as “riders” to your mortgage protection insurance plan.
What about websites with instant quote forms?
You mean like ours? These quote forms are accurate if you know your “risk class.” If you are healthy, are on one or two regular maintenance medications, you should qualify for a standard rating. If you have a more serious illness, you can call us, and we will get you an accurate quote.
There is no “bait and switch” tactics used when you fill out our online quote form. We will always follow up with you and explain what you qualify for. We will show it to you in writing and prove you’re getting the best-priced insurance policy.
You should always understand any exceptions or legal limitations with your mortgage protection insurance or life insurance policies. We love hearing from people about how thorough we are in making sure they understand what their insurance coverage will do for them!
Check out our “mission statement” to see how we run our business. Nobody else in the insurance industry offers these guarantees!
Why should I get mortgage protection insurance from buymortgageprotection.com?
We are not an insurance company; we are an independent insurance agency. We are professional shoppers for you, your family, and your home!
Nobody in the insurance industry will make the guarantees we make to you in our “mission statement.” We know you need a trusted insurance advisor, and we will always put your needs before ours!
We will find you a policy that fits your insurance needs and budget. We will offer you several choices, so you can make the best decision for you, your family, and your home.
PMI was mentioned above – how can I stop paying PMI?
When you get to the 80% loan to home value ratio, you can then request the PMI on your loan be dropped. You will just need to submit paperwork to your lender showing your loan balance is now 80% of the value of your home.
As you are paying off your mortgage, your loan balance is declining. At the same time, your home value is increasing. So, in our example above, you bought a $100,000 home, put down $10,000, and have $10,000 remaining to get to the 80% level at which you can drop your PMI. If you pay down your mortgage $5000, and your home value increases to $106,000, then you would meet the 20% requirement and be able to drop your PMI.
What is the best mortgage protection policy?
The best mortgage protection fits in your budget today, protects your family, protects your home, and assures the insurance money is delivered to the beneficiaries of your choice when you die.
The best mortgage protection policies also have living benefits that protect your home should you become ill, disabled, or unable to work.
The best mortgage protection should also be transferable from home to home, so if your health changes for the worse, you don’t lose your important mortgage protection coverage.
The best mortgage protection should also be a separate policy from your regular life insurance. This allows you flexibility with your budgeting and allows you to drop unnecessary life insurance policies when they are no longer needed. This will help you better fit mortgage protection and life insurance into your budget.