Mortgage Protection Insurance

Different Than Private Mortgage Protection

We would all agree that losing a spouse is a traumatic experience. In all honesty, it is probably one of the worst things we have to go through in life. The grieving process takes time and, depending on how prepared you were, difficult decisions must be made. Of course, there are immediate decisions such as what type of funeral or service to have. Or perhaps what to do with the additional vehicle or other assets that may not be used any longer, but what about the expenses that relied on the extra cash flow?

Your Home is Your Comfort Zone

Purchasing Mortgage Protection allows for your family to pay off the remaining balance on your mortgage after your passing. By doing this, not only does it help to lower the monthly expenses by removing a mortgage from your loved ones debts, it also protects their way of life. For many families, after losing a loved one, the bank will foreclose on the mortgage and keep not only the property, but the equity accrued in the home. This can leave your family with nothing but the anxiety inducing task of finding a new, stable place to live.

I Already Have Mortgage Insurance With My Bank

A very common misunderstanding is that the private mortgage insurance, or PMI, purchased when closing on the purchase of your home to protect the mortgage is that the coverage is for you and your family if something were to stop you from paying the loan. This is likely due to the misleading title of “Private” Mortgage Insurance. Private, in this case, only applies to who pays for the coverage. What most families do not realize, this coverage protects the bank in case you stop paying the mortgage. The bank receives the money from the insurance payout and can still foreclose on the mortgage taking your home. Mortgage Protection Insurance, or MPI, allows your loved ones to pay that mortgage off before the bank can foreclose.

How Long Does the Coverage Last?

A well placed Mortgage Protection Plan will match with the term of your mortgage, so when your mortgage is paid off, your policy will then mature. Coverage terms are usually offered in five year increments and the maximum length of the coverage is dependent on your age when applying for the insurance. Traditionally, these policies have been written with a decreasing term, meaning the coverage amount decreases with the mortgage as the years progress, however, most modern mortgage protection plans offer a level benefit with both premiums and face amount remaining level and never changing for the duration of the policy as long as the policy remains in good standing.

What if I Want to Pay Off My Mortgage Early?

Some mortgage protection plans offer a cash back option, sometimes referred to as a return of premium rider. This charge is added to the policy’s montly or annual premium and allows you to receive a portion of your premiums (up to 100% depending on the policy) back at the end of the policy term as long as your policy remains in good standing. Essentially, this means if you plan to make extra payments toward your mortgage every month to try to pay down a 30 year loan in 25 years, you could take out a 25 year policy with a cash back option and receive a full refund of all the money you have paid at the 25 year mark. You then apply this balance to the remaining balance on your mortgage, helping you to pay off your balance early, while still providing coverage during the policy term.

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