Protect your home with Mortgage Protection Insurance, No one would love to leave their family financially stranded with debts to cover, at any point. The same goes for you.
This is where purchasing a mortgage protection policy comes into place. You might be wondering, “how?”
Think no further. In the following post, we will show you what this policy is all about. And also, why it might be important for you to purchase one.
What is Mortgage Protection Insurance?
Mortgage Protection Insurance is simply a policy that helps you complete your home loan payments.
A mortgage generally refers to the loan you use to purchase a house, land or any other type of real estate.
In this policy, the insurance company collects a certain agreed amount of premium from you monthly, in view of covering your loan whenever you are unable to.
Your insurer pays a certain amount or the remainder of your loan to the mortgage lender during either;
- The time you are out of work and income due to sickness or work-dismissal. In this case, you won’t be able to repay your loan and can lose your home if you don’t have this insurance.
- When you die and are no longer there to pay. In such a case, your insurer covers your beneficiaries here by paying the remainder of your loan to the mortgage company.
Mortgage Protection is also called ‘Mortgage Life Insurance. This policy is so-called when payments are made upon the death of the insured.
Note that Mortgage Protection Insurance(MPI) should not be confused with Private Mortgage Insurance (PMI).
PMI is solely for the mortgage lender protection, never the buyers. Some mortgage lenders often set buying PMI as a condition for buyers before giving out a mortgage.
MPI meanwhile, is majorly for your benefit as a buyer.
Types of Mortgage Protection Policies.
According to WhichdotUk, there are three(3) types of policies that exist under Mortgage Protection Insurance. They include:
- Unemployment only– this covers your mortgage loans only when you’ve been dismissed from work. In this case, you earn no income to pay loans. As such, your insurance company comes in to cover for you.
- Accident and Sickness only– this policy pays your home loan only when you are seriously ill or have encountered an accident that’d prevent you from working.
- Accident, Sickness & Unemployment– this covers mortgage payments in both cases—whether you are sick or unemployed.
Advantages of Purchasing Mortgage Protection.
The major benefit you get in taking out this policy is the guarantee that your home won’t be taken back by the mortgage lender—in the case when you default on your loan payment.
Other advantages of purchasing Mortgage Protection Insurance include;
- It involves a very simple process of purchase.
- Almost anyone can get this policy(whether you are currently sick at the time of purchase or an older individual).
- It serves as added protection along with any existing life insurance policy that you have.
- It gives you the certainty that your dependents will not lose shelter.
- You get the option to add other benefits to this policy (usually for a higher premium).
Disadvantages of Mortgage Protection Insurance.
Mortgage Protection Insurance can be a financial saver at unexpected periods. However, there are certain drawbacks to purchasing this policy. Some of these are:
- The premium payments benefits go majorly to the lender and never to you or your family.
- The benefits you get in purchasing this policy are very limited compared to purchasing other insurance policies such as term life insurance.
- You eventually pay more for lesser coverage as time goes on. This occurs when your loan decreases but your policy with the insurer stays at the same price rate.
- The expense could be unnecessary as you pay insurance along with paying the lender also from the same income.
Factors that Influence Cost of Mortgage Protection Insurance.
There are majorly three(3) factors that affect your cost of purchasing mortgage protection. They are; your age, the cost of your mortgage repayment and the type of policy you choose.
- Age– Older individuals are charged higher premiums than their younger counterparts as they are considered prone to more illnesses or even death. This might require the insurer to make payments in a shorter amount of time. Thus, premiums charges apply for coverage such as this.
- Mortgage Repayment Cost– The higher the amount of mortgage payment you’d want your insurer to cover, the higher your premium rate will be.
- Type of Policy– Purchasing the sickness, accident and Unemployment policy will definitely be more expensive than purchasing just an ‘unemployment-only’ policy. Also, adding certain other benefits to your policy will require you to pay higher premiums.
Alternatives to Consider before Going for this Policy.
It is often advisable you search out other types of insurance before settling for mortgage protection. This is because you might actually get the better type of insurance you need, for a lesser price.
Alternatives to consider before opting for Mortgage Protection Insurance include:
- Term Life Insurance: This policy is worth considering if you are more concerned about how your beneficiaries’ will cope financially together with a shelter in place. In this type of insurance, you agree to a certain amount of cover your family gets after your death. The amount agreed here should be enough to cover both your outstanding debt and your family’s livelihood after payment.
- Income Protection: This is a long-term policy that enables you to receive income while you’re sick and unable to work. This policy covers you till you retire. Hence, you can compare benefits in an ‘accident or sickness-only’ mortgage protection policy with the income protection policy for a better option.
Also, Read >>> Term Life Insurance Price Calculator
- Critical Illness Insurance: This type of insurance pays you a direct lump sum to cover any expense while you are critically sick. The benefit is that you can usually use a part of the amount to pay your mortgage during the time you are out of work.
- Employee Benefits: Before purchasing a mortgage protection plan, it is important you make enquiries from your employer to know if you are open to certain employee benefits. Employee benefits refer to certain insurance plans employers can have in place for their employees. This insurance pays income to a sick employee while he’s out of work.
If you’ve searched and compared your alternatives but find the mortgage protection policy to be the best for you, then go with it by all means.
To get the best rates, however, you have to compare different price rates for a policy by searching on reputable sites.
Mortgage protection policy generally offers you peace of mind towards repaying your loan. Nevertheless, it is necessary you know the basics of what this policy is about so as to make informed decisions when buying out a policy.
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