Table of Contents:
What is Mortgage Protection?
Mortgage protection policies technically are simply Term life insurance policies that are dedicated to paying off the mortgage upon death and avoiding foreclosure. Many of these policies, also have built-in protection that pays anywhere from 24% – 100% of the policy amount if the insured has a diagnosed terminal, critical or chronic disorder. In addition, these policies can pay the insured, while alive, if they lose their ADL’s (Activities of Daily Living), such as being able to independently get out of bed, take their own medications, independently use the toilet, etc.
PMI VS MPI Insurance
PMI Pays the Lender
Often borrowers may be required to pay for PMI when they get a loan. A PMI is private mortgage insurance. It is a very common misconception that PMI pays off the loan upon the borrower’s death or disability. This is incorrect. PMI is absolutely NOT the same thing as your home loan protection. PMI only benefits the lender. Upon the borrower’s death, PMI is a policy that does pay something to the lender, but the loan dollar amount is NOT adjusted and everything is still owed to the lender as if nothing has occurred. In our business, we have to constantly educate borrowers about how their PMI works.
Mortgage Protection Pays the Borrower
Mortgage Protection, on the other hand, is designed to pay 100% of the benefit to the borrower. It is a term life insurance policy, typically owned by the borrower. This type of policy pays the beneficiary, rather than to the lender. It is entirely up to the beneficiary as to how this money is used. They can pay off the mortgage and completely eliminate the threat of foreclosure. These policies’ terms can be 10-30 years, depending on what pricing and term length line up with your budget when you acquire the policy. Your mortgage protection policy will be guaranteed and “locked-in” for the entire term.
A few limitations of Mortgage Protection:
Not Everyone Qualifies
1) Not everyone qualifies for these policies. Qualification is entirely based on the insured’s health and age. Age can be anywhere from 18 – 80. Health requirements vary. Typically you need to have three or less active medical prescriptions and have no moderate or major health complications.
Prices Drastically Increase With Age
2) Price drastically increases as you pass the age of 60. A healthy 50-year-old may easily pay half of what a healthy 60/65-year-old pays.
It has an Expiration Date
3) At the end of the mortgage policy term, your investment is not returned to you and you will need to get reinsured. However, most clients, at this time, choose a whole life insurance structured policy, to carry their protection for the rest of their lives.
Home Protection Insider Tips:
1) Purchase a MortgageProtection Policy as early and as YOUNG as you can afford to. The prices go up steeply, the longer you wait.
2) For those that cannot afford it, or do not qualify, based on age or health, speak with a life insurance agent about other options. You will most likely qualify for a whole life structured policy, with a reduced payout (death benefit).
3) Typically, you should try to get the longest term length you can afford because this locks in your health, coverage, and cost for the duration of the policy.
4) There is a term type of protection for your mortgage that returns 100% of your investment back to you at the end of the policy term (10-30 years). This type of policy is called “Return of Premium” (ROP) mortgage protection. So, it typically costs 20% – 50% more than the traditional mortgage protection policy. However, if you make payments until the end of the term, every penny is returned to you in one wonderful check.
Feel free to check the website for more details on mortgage protection. It can be found within the services tab. Reach out to a member of our team if you have any follow up questions about this program.