While shopping around for life insurance, you may have come across the term “Mortgage Protection” or “Mortgage Life Insurance.” What is Mortgage Protection, and how is it different from life insurance? Why might you need it?
When you purchase life insurance, what you’re essentially trying to do is make sure that if you die, your family will be protected.
If you’re the main breadwinner in your household (or the only one), when your income is cut off, your family will have to fend for themselves. That means that your partner may need to find a job, and even your children may need to find jobs in order to survive.
During such a stressful, painful time, the last thing you want them to be worrying about is whether they will be homeless if they don’t find revenue in time.
If you still owe money on your mortgage when you die, they will be saddled with those payments and maybe even your debt if your spouse was a co-signer on your mortgage.
Mortgage Protection is usually used to refer to Mortgage Life Insurance or Mortgage Payment Protection Insurance, which are two different but related products. Mortgage Life Insurance is a type of life insurance (or a feature of some life insurance plans) which will cover what is left on your mortgage if you pass away.
Typically the sum covered will decrease with time, but not as quickly as your mortgage. That means enough money should be available if you die that your beneficiaries will be able to use the life insurance payoff to cover the mortgage.
Some Mortgage Life Insurance plans allow the beneficiaries to receive the money directly, while others pay the lender for your home directly. Which you choose should depend on the personalities and goals of your family members.
Some people are better off if they are not allowed to handle the money (irresponsible children for example), while others would be better off if they were given the money.
Your family members may not even want the home; if so, you should set it up so they can receive the money directly and choose what to do next.
The other product, Mortgage Payment Protection Insurance, also known as Mortgage Payment Protection ASU, is designed to cover your mortgage, not in the case of your death, but in the case of accident, sickness, or unemployment (ASU).
During these recession times, this is another type of insurance to consider investing in so that if you lose your job or some other misfortune befalls you, your family isn’t left to figure out how to keep themselves (and you) off the streets. Of course, you’ll need to be able to afford your premiums, but this could cost substantially less than your actual mortgage.
Another thing to take note of in your search for life insurance which will cover your mortgage is that many life insurance plans include mortgage insurance, since this is typically one of the biggest costs that many people leave behind them.
So even if an insurance plan isn’t called mortgage life insurance, it doesn’t mean that mortgage coverage isn’t part of the plan.