Mortgage Protection Plans
What is Mortgage protection?
Mortgage Protection is a concept of using insurance products to put aside money to pay off your mortgage in case of death, accident, illness or disability.
Isn't this the same as PMI?
NO! PMI, which stands for Private Mortgage Insurance, pays your lender directly if you pass away before your mortgage is paid. PMI is usually required if you did not put up at least 20% of the final price of your home when you bought it. If you become sick or disabled, and cannot pay your mortgage, PMI will not protect you from foreclosure.
So what is Mortgage Protection?
Mortgage Protection Insurance is designed to protect your family, not the bank or lender! With MPI, the policy is structured so if you do become sick, disabled, or die, the money is available for your family to pay off the mortgage. If the lender is paid, they don't foreclose on the home.
There are different types of Mortgage Protection Insurance, depending on what your family's plan will be with your house once you pass. Below is an explaination of the different plans and how they work.
Full Mortgage Payoff Plans
While the most popular of options, the full mortgage payoff is one of the hardest to qualify for. The larger the mortgage, the better your financial and personal health has to be to qualify. There are a few options when it comes to a full payoff insurance plan.
Some prefer to go the term insurance route, with an option that pays them back at the end of the term (return on premium plans). There is another term option that pays the lender back directly what is owed. As your loan decreases over time, so does the amount of the term policy and, your premiums decrease over time too!
Others prefer to go a more traditional route, and use whole life, a plan that will stay with them no matter where they live, even after the mortgage is paid off. Want to save toward retirement while also protecting your mortgage? Consider an IUL or Participating Life and let your insurance policy make you money tax free!
All of these plans have riders added for little to no extra cost, that cover disability, sickness or sudden onset of terminal illness, like a stroke or cancer.
Mortgage Payment/equity Protection Plans
For those that do not qualify for the full payment options, or if there is no one that will take over the house when you pass away, Mortgage protection or Equity protection plans are an option. These plans are usually less expensive than a full payoff, and can also be used as final expense life insurance after the mortgage is paid off.
The reason they are less expensive, is they are not going to cover every expense in full. Instead, they offer monthly payments to your beneficiary, or a lump sum payment, to keep your bills current while the assets are being sold. These plans are designed to cover up to 1 or 2 years of payments. Giving your family time to grieve, without being harassed by your creditors. How much time, payout schedule, and amount to be paid, is up to you to set up when the policy is written.
Mortgage Payment Protection
Gives your family time to grieve, and get their finances in order to refinance or sell the home to recover the full value. Costs substantially less than a full payoff, while still protecting the home from lender foreclosure. Popular options are 6, 12 or 18 months, or up to 2 years of mortgage payments, paid monthly to your beneficiary to pay the lender.
Equity Protection
Equity Protection, like Mortgage Payment Protection aims to give your beneficiary the time to grieve and also the time to get themselves in financial order. In most households, it isn't just the house that needs to be paid off, it could be a car, credit cards, or other credit accounts that will need to be paid. If you are a one income household, your family will need more than just a house to live in, they will need time to get on their own.