Mortgage Protection
How to protect your family
What is Mortgage Protection Insurance?
Many people confuse MPI with private mortgage insurance, or PMI.
“You’re required by law to get PMI if you put less than 20 percent down to purchase your home,” explains Christopher Ketcham, a visiting assistant professor at the University of Houston Downtown, who teaches courses about insurance. “It has nothing to do with disability, job loss or death. It pays the bank if you’re foreclosed on.”
Mortgage Protection Insurance does the following
Mortgage protection insurance: Should you buy it?
G.M. FILISKO
APRIL 27, 2018 in MORTGAGES
When you take out a mortgage, you can expect to be pitched mortgage protection insurance. It comes in several forms, but it typically covers your loan payments if you lose your job or become disabled, or it pays off your mortgage when you die.
Would you benefit from mortgage protection insurance?
The answer depends on your health, financial situation and what you want to happen when you die. Here are the pros and cons of mortgage protection insurance.
What is mortgage protection insurance?
Mortgage protection insurance, or MPI (sometimes called mortgage payment protection insurance), is simply a form of life insurance. The cost depends on factors such as the amount of your mortgage, your age and your health. For MPI policies that cover a mortgage in the event of disability, costs also vary depending on your occupation.
If you purchase mortgage protection insurance that pays off your mortgage when you die, the insurance company will send a check directly to your mortgage company, leaving your heirs with a home unencumbered by a mortgage.
Payments also go directly to your mortgage company if your policy pays upon disability or job loss — but only for a certain period, typically a year or two, and there may be a waiting period before payments kick in. Also note that disability or job-loss policies pay only the principal and interest on your mortgage. But you may be able to get a rider to cover other mortgage-related expenses, like home-owners association fees. (there are other options that give you the policy holder control
PROS
A major benefit of mortgage protection insurance is that it’s typically issued on a “guaranteed acceptance” basis.
“If you fill out the application, few questions will be asked to keep you from getting coverage,” says Kevin Lynch, an assistant professor of insurance at The American College in Bryn Mawr, Pennsylvania. “That’s valuable for people who are uninsurable or insurable at a high rate because of health issues.”
It’s also valuable for people who work in high-risk occupations, such as roofers, who usually can’t get disability insurance.
Since the insurance is typically a decreasing term, it is possible to cover a 30 year mortgage with a 20 year Term policy and buy the Premium Return Rider. That way the returned premiums plus a small interest, will allow you to pay off your home in 20 yeas and you will no longer need the insurance protection.
Reasons to reflect
Mortgage protection insurance is a waste of money if you own your home outright. In addition, MPI is a declining-benefit policy, which means that even though you pay a set premium for the life of your mortgage, the payoff amount decreases as you pay down your home loan.
Having a policy that wipes out your mortgage if you die may not be best for your family. “When my father passed away very young, my mother’s home was paid off by a lump-sum payment to the mortgage company,” Lynch says. “Her mortgage payment was something like $112 a month. It would have been more beneficial for her to receive the lump sum and earn the 18 percent interest banks were paying in the 1980s while continuing to make the mortgage payment.”
“Whether to pay off the mortgage upon a breadwinner’s death is a question you can’t answer unless you’re taking a comprehensive look at the family’s finances.”
So we look at your situation and see if we would recommend a Smart Universal Life policy that does the same as Mortgage Protection but gives you more flexibility with the control and distribution of the funds once you have a qualifying event.
As you can see each individual has options and so sitting down with you to see how we could maximize your families protection against catastrophic events has great value.
It is also not an all or nothing proposition, it is possible to take out sufficient coverage to cover the mortgage for a period of time to allow the surviving spouse time to grieve and make arrangements to sell the home or have sufficient financial resources to continue paying the mortgage on their own.
Contact your Equis Financial Local Agent to learn more about this opportunity – Laura Oelofse – 512-239-8174 e-mail : laura@insuranceready.me
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