Mortgage Insurance – Simple Reasons Why You Need it

Why opt for a mortgage insurance?

You create an asset when you buy a home. Most people acquire properties on a mortgage loan. Now imagine a scenario where if something happens to you resulting in your death. It causes a massive disruption in your kith and kin’s personal life and financial resources. The change in circumstances throws your dependent’s life out of gear. They may not retain the mortgaged property due to nonpayment of the outstanding mortgage loan.“Do I need mortgage insurance?” You may ask yourself.

Having mortgage insurance in case of death could help your dependants wriggle out of the challenging situation. If it covers your funeral expenses, it would of greater help.However, this may not only drain your entire investment, and yet it may be insufficient to pay your outstanding mortgage.It is at this stage where mortgagelife insurance or a mortgage term life insurance could save the day.Customers usually tend to think they both are the same. They are not. The features, and advantages of both are entirely different.

What is Mortgage Insurance?

Mortgage protection insurance is taken to cover the risk of the mortgage financier in case of a default by the borrower. It covers the home loan lender’s risk to a predetermined amount of the principal outstanding in case of a default. Hence it should not be viewed as a life insurance policy.

Mortgage Insurance Vs. Mortgage Life or Term Insurance

However,Mortgage life insurance is different. It is taken independently by a person to pay off his mortgage in case of his death. You buy this voluntarily, and the mortgage company has nothing to do with the taking of the policy. In simple terms, it is a standard life insurance policy but designed to pay off the mortgage in case of your death.

You can consider a standard level term mortgage term life insurance as it may be more cost-effective compared to a decreasing term policy. Not only would it provide extra security but could also be financially beneficial.

Benefits of having a Mortgage Term Insurance Policy

Let’s say you have a 20-yearlevel term life policy of $1 million and a mortgage of the same amount for 20 years. If you die during the term – say ten years later on, and your remaining mortgage is about $600,000. The mortgage protection insurance policy would pay $600,000 towards the outstanding mortgage amount of and pay the balance $400,000 to your nominee/s.

That said, term life insurance is suitable when risk mitigation of the mortgage is the sole purpose of taking an insurance policy. The policy term can be the same as that of your mortgage term. As it is quite cost-effective, it is a pretty viable option and can save the buyer much money.

It is pertinent to mention that group insurance your employer may provide could be insufficient to pay off your debts. Many a time it may not come to you at all. So, it is advisable that you opt for a separate mortgage protection insurance policy or a mortgage life insurance policy.

This approach would greatly help your policy’s beneficiaries in the event of your death. Survivors of the insured usually use the death benefits received to pay offthe mortgage and other debts. The mortgage usually takes a large chunk of these benefits, leaving very little for other expenses. You could have avoided all this if you had a suitable mortgage life insurance policy matching your needs.

Factors Affecting your Mortgage Life Insurance

Ideally, a term life insurance would be an economically viable option as compared to mortgage insurance. However, you may evaluate your situation concerning your health and other connected factors such as your financial stability, liabilities, mortgage term, amount and how much wealth you would want to leave behind as a legacy to your near and dear ones.

Your situation, requirements, and needs may be entirely different from others. Equally important would be factors such as your physical health, habits, and lifestyle.Your mortgage insurance premium can vary vastly depending upon age occupation, lifestyle and most importantly, your current health condition.

A Need Analysis Can Help You Decide

So, it would be worthwhile to get a thorough need analysis done before you buy a mortgage protection product.You may also want to evaluate other product options available in the market or even hire the services of an independent financial advisor.Though not mandatory while taking a mortgage it indeed would be wise to buy a mortgage protection insurance policy. Not considering purchasing mortgage life insurance could be disastrous.

There is another important angle that should be considered too while taking a call on purchasing an instrument for mortgage protection. You should plan for coverage for a permanent or temporary disability resulting from an accidental injury or be being affected with a critical illness as it can severely impact your financial situation. Should you encounter any such problem, you may get alump sum compensation or even weekly or monthly compensation in addition to the lump sum.

An informed decision could give substantial financial benefits to you and your beneficiaries. In other words, while the living benefits are significant, your death will not cause a turmoil in your family’s financial situation. This way you can provide for a smooth transition after you pass on.

Mortgage Payment Protection Insurance (MPPI) is another available option. This plan protects you on your mortgage liability should you become unemployed due to job loss or consequent to a critical illness or injury. This kind of policy is for a fixed amount or is in proportion to your current salary. Moreover, these policies generally do not impact the benefits received from the government as they are tax-free. It could reduce your financial worries during such trying times.

When you buy a mortgage, you need much money. However, this could be a challenge as you may be eligible for a lower amount than you need based on a mortgage insurance premium calculator. The lender is exposed to a higher risk if they provide you with the amount you require.

The final word

of default. This facility is provided by linking mortgage insurance policies to the mortgages.The irony of mortgage life insurance is that all your premium payments benefit the lender and not you,unlike any other regular insurance product, However, this is required to ensure the protection to your family members so that the property remains safely withthem in case anything untoward happens to you