Mortgage Protection Insurance: Do You Need It?

Mortgage protection insurance is insurance that pays off your mortgage if you die and/or pays your principle and interest payments should you become unemployed or disabled. Each mortgage protection policy is different and needs to be closely analyzed in conversation with your financial planner to be sure it is a good deal for you. Most have a waiting period for the unemployment or disabled benefit to kick in, and all have limitations on how long they will cover the payment if you are alive and unemployed. But if you are in a profession where layoffs and unemployment are a likely reality, mortgage protection insurance may be exactly what you need. 

1. Is it a level term policy (best) or does it increase or decrease over time (not the best). 
2. What is the waiting period for coverage to start if you are disabled or unemployed? Will this be too long for you to avoid foreclosure?
3. What exclusions of coverage are in the policy? (For example, what is the definition of unemployed? What if you are disabled for your particular profession but could still be a cashier earning minimum wage, will you get the benefit?)
4. Would disability insurance through your work place be more cost effective or have better benefits?
5. Would you be better off purchasing a lump sum payment insurance for your mortgage upon your death, or including disability and unemployment? This is a question to cover with your financial advisor. 

Mortgage Protection Insurance will vary in cost depending on several factors:

• The risk level to your health for your profession and/or lifestyle. 
• The risk level to your job security in your profession.
• Your age and relative health (including things like smoking). 
• The amount you owe on your home. 
• The type of coverage you choose and the amount of coverage you opt in for.
• Whether the policy gives the original value of the home or simply pays of the home's mortgage with a lump sum. If the latter, you may only owe $40,000 at the time of receiving the benefit you insured for $200,000. 

Unlike private mortgage insurance (PMI) which you are required to get by law for the sake of the lender if your mortgage is more than 80% of the value, mortgage protection insurance is completely optional. Further, private mortgage insurance protects the bank, mortgage protection insurance protects you and keeps your family in the home. 

See related articles on this page for more information, or continue the series on help with your mortgage following the link below.