Taking out a mortgage can be a scary prospect. Now imagine if one of the household’s breadwinners dies. How will you make the payments? Mortgage protection insurance is one way.
You can purchase a policy when you buy your home. Often, you must buy it within a certain time period after closing escrow, generally up to 13 or 24 months. However, some companies may allow up to as much as five years.
The idea behind mortgage protection insurance is straightforward: You pay a premium, which remains the same for the policy’s duration. If you die during that time, the insurance pays out your death benefit.
“Mortgage protection insurance is a life insurance program that gives you special benefits because you have a mortgage,” says Andy Albright, president and CEO of National Agents Alliance, the largest mortgage insurance broker in the nation.
The type of death benefit you receive depends on the type of policy you purchase. Mortgage protection insurance has evolved, Albright says. It used to be that your death benefit would be the outstanding balance on your mortgage. Today, most mortgage insurance policies are designed to pay out the full amount of your original mortgage, no matter how much you owe.
The beneficiary can often use the remaining money for anything.
If you pay off your mortgage early, you keep the coverage until the term of your policy expires. Some insurers will allow you to turn that mortgage insurance into a life insurance policy, Albright says.
Another benefit of mortgage life insurance is that you can have protection if you become disabled or lose your job. A policy may continue to pay your mortgage until you’re able to get back on your feet financially again. Read the fine print to make sure this is part of your policy if this interests you.