So, you are considering taking out a mortgage protection insurance policy, but you also aren’t sure if the policy is right for you? Most borrowers who have a mortgage know something about mortgage protection insurance. The mortgage application process leads to many borrowers receiving mail from mortgage protection insurance agencies trying to sell them on the idea of taking out a policy.
This flood of information can be overwhelming for many borrowers and leave them still unsure of whether taking out a policy is the right decision. Understanding the advantages and disadvantages of mortgage protection insurance will be helpful in deciding if taking out a policy makes sense given your situation.
Mortgage Protection Insurance Explained
Mortgage protection insurance is a type of life insurance that specifically addresses the problems that arise when an individual who is actively repaying a mortgage loan passes away. When the unexpected happens, someone will still have to pay back the lender for the amount borrowed on the mortgage.
However, mortgage protection insurance is specifically designed to repay the mortgage if the borrower unexpectedly passes away. This would protect the borrower’s loved ones from having the financial burden of monthly mortgage repayments.
Pros of Mortgage Protection Insurance
- Peace of mind. Knowing that if the unexpected happens to you, your family will not be on the hook for making substantial monthly repayments can help you feel more at ease. That peace of mind may make the insurance worth it to you.
- Disability protection. Some mortgage protection insurance policies also provide coverage to homeowners in the event that they become disabled. In this case, the insurer would pay your monthly mortgage repayments to the lender. However, this coverage will usually only last for a limited time.
- Easy to qualify for. Mortgage protection insurance can be easier to qualify for because there is no medical exam required. This can be beneficial if you have any health issues and/or if you have a dangerous job.
Cons of Mortgage Protection Insurance
- Expensive. In most cases, mortgage protection insurance is more expensive than taking out a life insurance policy. This can be especially true for healthy, young adults.
- Decreasing coverage. The coverage provided by mortgage protection insurance decreases with time. As the mortgage balance decreases due to you making repayments, so too does the payout that would be provided by the insurer. This decreasing coverage occurs despite the premiums made for the policy remaining the same.
- Little flexibility. If the unexpected happens, the beneficiaries of the policy will have no control over the payout. The insurer will send the money directly to the mortgage lender.
Mortgage protection insurance can be a great option for some. Understanding what your situation is and how the policy would fit into it can help you decide if taking out a policy is the right decision for you.