If you are a current homeowner, chances are you have heard about mortgage protection insurance, and it could be a wise investment to protect your property from foreclosure. But before you decide on whether to get mortgage protection or not, get informed. You may want to ask yourself a few questions: Do I have a high-risk job where getting injured could mean I’m out of work? Will a sudden physical disability make it harder to pay my monthly mortgages if I don’t have a steady income? If I’m the breadwinner of my household, will my family be able to live in their house if I’m gone?
If you find these questions concerning, it may be worthwhile to learn more about what a mortgage protection insurance plan is, and how it could potentially help you keep your home and provide the peace of mind that your loved ones will be able to remain in their home.
What is Mortgage Protection Insurance?
The purpose of mortgage protection insurance, or MPI, is to protect one’s house when they are unable to pay off their mortgages after some event. Depending on the insurance plan you choose, MPI could provide financial support for various scenarios that may complicate your financial sustainability, like a sudden disability, the loss of a job, or death. By having MPI, you ensure that you and your loved ones will not have to worry about foreclosure or relinquish their assets if something happens to you or your way of making income.
What are the advantages?
This type of insurance can be available to any homeowner. If you were to apply for MPI, it is pretty much guaranteed to be accepted. Due to its high accessibility, this insurance can be extremely beneficial to people with underlying health problems or have a high-risk job that could potentially result in a disability or other health catastrophes. It also can act temporary financial protection in the wake of a sudden job loss for both the homeowner and their household. With mortgage protection, the insurance company will pay off monthly mortgages directly to the lender without any guesswork.
Are there any disadvantages?
While it may be nice not to worry about your mortgage after a traumatic event, having this insurance could potentially be less beneficial as time goes on. Compared to standard term life insurance, MPI has a much higher cost. This cost will stay the same as long as it is activated regardless of whether your mortgage balance decreases, meaning that you may have to pay for less coverage for the same price. In some plans, this amount may increase over time once you activate the coverage. If you have extracted or applied for any home equity loans, MPI will only be able to pay off the amount owed from the initial mortgage payment. This means that the insurance will not cover anything except the amount owed to the lender, so don’t expect your financial problems to solve themselves with MPI. At most, it will give you some hang time to not worry about losing your house to the bank while you recover from some financially traumatic event.
When can Mortgage Protection Insurance REALLY safeguard me?
Mortgage protection can act as a sort of life insurance, though that isn’t its function. The purpose of MPI is to temporarily protect a homeowner’s property when they are unable to pay their monthly mortgages. This could be valuable to someone who has insufficient or little to no life insurance, as it could safeguard the bank from repossessing their home. However, this does not mean that your loved ones will be taken care of in the event of your death; instead, it allows them to remain living in their house for however long they decide to pay for the coverage plan.
Is it the same as Private Mortgage Insurance?
Mortgage Protection Insurance is NOT the same as Private Mortgage Insurance (PMI). These two are often confused with each other due to similar wording and acronym. To be clear, PMI is an insurance coverage plan that protects the lender if there is a financial loss to the lender during foreclosure when the homeowner defaults on their monthly mortgage payments. Many lenders will require the homeowner to obtain and pay for PMI if a home buyer’s down payment is less than 20%, which results in a loan-to-value ratio (LTV) greater than 80%. The most significant difference is that MPI specifically protects the homeowner by making their monthly mortgage payments until the homeowner regains financial stability.
Is it the same as Term Life Insurance?
No, but there are similarities. Most term life insurance policies function like MPI in that it offers financial protection in the event of a catastrophic loss, such as loss of income or death. It is different because term life insurance gives additional and general coverage as financial security to surviving family members following the death of you or a covered member of your family. This makes it far more flexible in the financial support it provides since it is doing more than solely paying off housing mortgages. You should also know that term life insurance does not provide additional coverage to paying off your mortgage in its plan, although it could provide the funds to do so.
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Should I go for Term Life Insurance instead?
If you or a family member currently have a high-risk job or potential loss of income, MPI may work out better for you. If you would like to have an insurance policy that would pay your survivors an amount greater than your mortgage debt, you should probably look into getting a term life insurance policy instead. An MPI plan may not be the best investment for everyone due to its high rates and low flexibility in dire economic situations. You should consider it if you believe you and your household members could be at risk of losing your home if something occurs that adversely affects your household income. As mentioned previously, an MPI plan only supports monthly mortgages payments and nothing else. If your mortgage is nearly paid off or you have no trouble paying monthly rates, it would not be a good idea to invest in MPI when you don’t need to.
Where do I find the right Mortgage Protection Insurance provider?
Choosing a financial provider shouldn’t be a rushed process. If you want to find the best plan for you and your household, take the time to research various insurance agencies and the insurance plans they are offering. When examining the different policies, consider how they are priced and the financial events that the plan does not cover. It may also be beneficial to make a thorough examination of your financial status and household; that way, you may make the best decision to benefit you and your family.
You should never feel pressured to invest in an MPI plan. Just because it satisfies one household’s needs doesn’t mean that it may be right for all homeowners. After all, there are more flexible and affordable options for life insurance. However, if you are having difficulties receiving standard life insurance, MPI might be something you should consider. If you want to learn more about mortgage protection insurance and whether you should acquire it for your property, feel free to contact us at Mares Mortgage here and we will help you make the best decision.
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