Negosentro | MORTGAGE PROTECTION INSURANCE – THE GOOD, THE BAD, AND WHETHER YOU SHOULD CONSIDER IT | Mortgage protection insurance is a type of life insurance policy where, instead of getting a payout in cash, the remaining mortgage payments on a property are paid for if the subscriber to the policy were to unfortunately die or lose the means to earn an income due to injury.
The similarities between mortgage protection insurance and other types of insurances are quite obvious. Once you subscribe, you need to pay regular premiums until the policy’s term has ended. If the policy’s term ends in your lifetime, then you get a certain payout for the money that you have put into the policy.
However, the differences are in regards to the beneficiary of the insurance policy. While the family of the deceased is the beneficiary under life insurance policies, under mortgage protection insurance policies the beneficiary is the mortgage company or lender.
Also, with the passage of time, as your keep paying your mortgage installments, the balance of the policy decreases after a certain time period. With other life insurance policies the benefit stays the same unless the policy itself is changed. This is not the case with mortgage protection insurance and the balance decreases with time according to a fixed formula of the insurance coverage provider.
Finally, there’s the way the term is structured in mortgage protection insurance policies. With life insurance policies you’re looking at terms of five, ten, and twenty years. With mortgage protection insurance, the term will be fixed according to the period of your mortgage i.e. either 15 years or 30 years.
Some life insurance providers even allow for customer terms, but there is no such provision when it comes to mortgage protection insurance. Some mortgage protection insurance providers may even have certain conditions with regards to age or employment before you qualify for a specific term (either 15 years or 30 years).
THE ADVANTAGES OF MORTGAGE PROTECTION INSURANCE
The biggest advantage of a mortgage protection insurance is the protection it offers for a liability that can have lasting consequences for your loved ones if you were unable to meet that liability. If you are the only breadwinner in your home and you die tomorrow, your family would be left without any means to pay the mortgage.
With other insurance policies there is a lump sum payout and the family needs to make decisions as to where the money is to be allocated. Often families need to move to a smaller home so that the money can be used more effectively and for other necessities.
Lastly, mortgage protection insurance policies may not be very flexible. You don’t have much choice in the way of coverage, term, age restrictions, and so much more. You’re basically buying a predefined package that will offer you fixed protection for your mortgage. You’re looking at a pretty big opportunity cost if you opt for a mortgage protection insurance plan especially when there are more flexible options in the market when you are buying a house and want to ensure the loan is repaid.
SOME FACTORS YOU SHOULD CONSIDER BEFORE SUBSCRIBING
First and foremost, you need to check with more than one insurance provider to ensure that you’re getting the best deal possible. With the amount of competition in the market today, you’ll end up finding a deal that is ideal for you and your family.
Before you sign anything, make sure you read through the entire contract. Familiarize yourself with the salient terms, such as consequences of default and termination provisions. You need to be aware of what you’re getting into so there are no surprises when the time comes for your family to claim insurance if the worst were to happen.
THE DISADVANTAGES OF MORTGAGE PROTECTION INSURANCE
Among many issues with mortgage protection insurance, their narrow scope if a very big problem. Essentially you’re paying a hefty premium solely to afford protection for one of the debts that your family would be left with. A life insurance policy would allow you to settle mortgage payments and other bills and payments that your family would be left to deal with.
Not only is the scope of the policy limited, but you’ll also be paying a significant amount of money for this limited security. At times, mortgage protection insurance policies have been found to be twice as expensive as a comparable life insurance policy. Not only are you paying more, you’re also agreeing to a diminishing balance over the term of the policy. Therefore, as time goes on you’re paying more in return for less.
Lastly, mortgage protection insurance policies are not very flexible. You don’t have much choice in the way of coverage, term, age restrictions, and so much more. You’re basically buying a predefined package that will offer you fixed protection for your mortgage. You’re looking at a pretty big opportunity cost if you opt for a mortgage protection insurance plan especially when there are more flexible options in the market.
IS IT WORTH IT?
There’s a pretty big opportunity cost associated with mortgage protection insurance. For a man of limited means, a lot would have to be sacrificed for mortgage protection insurance. However, if money is no object and you can afford the mortgage protection insurance in addition to other types of insurance coverage, then it can be a great option for you and your family. One can’t deny that it is convenient and in addition to your family not feeling the financial burden of the mortgage, it will also be freed of having to deal with administrative issues unless it has to do with the handing over of the house once the payments are all made.
Another advantage of mortgage protection insurance is that it will help you get better deals. If a mortgage lender knows your payments are insured, the interest rate against your mortgage would be a lot better and your premium payments could go down, making the mortgage a lot more affordable. In fact, the lender might go above and beyond as he knows his competition will also want you as a borrower due to the mortgage protection insurance.
If the above makes sense to you and you feel mortgage protection insurance is a good idea for you and your family, then click here to learn more and see some great offers.