Mortgage protection insurance will pay off the value of your home in the event of death or disability. As with life insurance, the policyholder pays set premiums. Depending on the policy, the benefit may exceed the cost of paying off the mortgage. Mortgage protection insurance is typically easier to obtain than standard life insurance.
Mortgage protection insurance provides peace of mind in the event of an accident that causes the death or disability of the policyholder. Many types of mortgage protection policies will pay out the full amount of the original mortgage in the event of a death, not just the balance due on the loan. When a disabling injury occurs, mortgage protection insurance enables policyholders to continue making their monthly mortgage payments.
Depending on the company, you may not need to undergo a medical exam to obtain coverage. You can opt to have the benefit amount dispersed as a lump sum, over several years or monthly as mortgage payments come due. Some policies offers such additional features as payback of premiums; suspension of premium payments in the case of unemployment; and the option of turning the mortgage policy into a life insurance policy.
The premiums on mortgage protection insurance depend on the size of the mortgage, the age of the insured and whether the insured smokes. Policies generally must be taken out within two years of purchasing the home, although some companies will issue a policy after as long as five years. If a home is refinanced, a new policy may be required. The national average amount for a mortgage is $120,000, with the average premium for a basic policy at $50 a month, according to Andy Albright, president and CEO of National Agents Alliance, which bills itself as the nation's largest seller of such policies.
An alternative to mortgage protection insurance is some type of life insurance, which can be purchased for any amount of coverage. Mortgage protection insurance is usually limited to the amount of the initial mortgage.
Mortgage protection insurance is not to be confused with private mortgage insurance. Home buyers are generally required to take out PMI policies if they make a down payment of under 20 percent. If the borrower defaults, the PMI payout goes to the lender to cover a portion of the loan.