If you have recently closed on a home loan, it’s likely that you’ve received several notices about Mortgage Protection Insurance. Did you read them or throw them away?
If you opened your letters, you are probably curious about this insurance called “Mortgage Protection Insurance” and have ended up online to get more information.
Wouldn’t it be great if you could set up a safety net for your loved ones so that if you were to die unexpectedly, your home mortgage could be paid off and your family could remain in their paid-for home? Or perhaps you don’t die from a critical event such as a heart attack, stroke or develop cancer and need to get your hands on some cash. Mortgage Protection Insurance can pay a lump sum to keep you and your family in your home.
You can have this peace of mind with Mortgage Protection Insurance.
What is Mortgage Protection Insurance?
Simply put, Mortgage Protection Insurance pays off your mortgage if you die during the policy term. It is term life insurance that is designed to pay off your mortgage so that you can leave your surviving loved ones a paid-for home.
Some of our policies can even build up cash value and help you pay off your home in as little as 10 years.
To be honest, Mortgage Protection Insurance is not a “type” of life insurance but rather a “Purpose” for a life insurance policy. In almost every case, term life insurance is used as the foundation for a Mortgage Protection Plan. Since term insurance is the most affordable insurance available and can be purchased with a policy period of up to 30-years, it is the perfect life insurance product for Mortgage Protection Insurance. We even have a 40-year term policy through Banner Life now.
Mortgage Protection Insurance protects your mortgage by insuring your life, your spouse’s life, or both, for the amount of the mortgage and for the length of the mortgage. This way, if a covered breadwinner should die unexpectedly during the term of the policy, (which should match the term of the mortgage), the beneficiary can pay off the mortgage and the family can continue to live in the paid-for home.
What Mortgage Protection Insurance will not Do For You
Mortgage Protection Insurance is not like a homeowner’s policy and will not pay to repair or replace your home and the policy does not provide liability if you are sued by someone that gets hurt on or in your property.
Mortgage protection insurance is not the same as Private Mortgage Insurance (PMI) which you may be required to purchase if your down payment on your home is insufficient. PMI does not protect you or your family; it only protects your lender if you default on your mortgage loan. Usually, a home buyer is required to purchase PMI if their down payment on the home is less than 20% of the purchase price.
I already have Life Insurance through my Job
Having a group term insurance policy through your employer is a wonderful benefit because there is no medical underwriting and the employer typically pays all or a portion of the premium. Your employer-sponsored life insurance should be used as a supplement to your individual life insurance program because there are some inherent issues with this type of coverage:
- Group life insurance is not portable. If you leave your job or are terminated, you cannot take your life insurance with you.
- The coverage limits on group life insurance is typically a multiple of your annual salary (2 or 3 times). This means if you are earning $100,000 per year, your death benefit will only be $200,000 or $300,000 which will typically fall short in paying off your mortgage and providing additional funds that your surviving loved ones will need to continue on financially.
- If your spouse is also a breadwinner and his or her income is needed to pay the mortgage, the spouse typically cannot get covered for the same amount on the group policy and will, therefore, need an individual life insurance policy as well.
I’m Already Covered under an Individual Life Policy
If you currently have life insurance but didn’t own a home when you purchased it, your death benefit is likely not enough to cover all your insurance needs plus paying off your mortgage. Most experienced life insurance agents will always recommend that you purchase enough life insurance to provide replacement income for the following:
- Pay monthly living expenses for your surviving loved ones for a period of three years or more.
- Provide the funds needed to help with the cost of college education for your children.
- Provide the funds needed to pay into a retirement plan for your spouse.
- Pay off debts like credit cards, personal loans, and vehicle loans
- PAY OFF YOUR MORTGAGE
If you didn’t have a mortgage when you purchased your life insurance, it’s unlikely that the debt was considered when your agent completed your insurance needs analysis.
Isn’t Mortgage Protection Insurance just Term Insurance?
Yes. As we mentioned earlier, mortgage protection insurance is a purpose for life insurance. The best type of insurance to use is term life insurance because it is the most affordable type of insurance and has policy periods that match up with the length of your mortgage.
When mortgage insurance was first introduced, most insurance carriers used “decreasing term” insurance because the death benefit would go down as your mortgage balance went down. Even though you ended up with little or no insurance at the end of the term, the rates did not go down as the coverage did and the monthly premiums were not that much lower than a level term policy.
Today, we primarily use level term insurance because it accommodates the insured if they sell one home and buy another, they can use the same insurance policy because it covers the person and not the home. Plus, if the insured dies, the beneficiary can use the death benefit for anything they wish. For example, your surviving spouse may decide to sell the home and move into a condo and spend the death benefit on paying off other things or starting a business.
If you prefer to assign your policy to your lender, you can do that, but make sure the assignment has the clause “at their interest may appear.” That way the lender must return the unearned portion of the death benefit to the beneficiary on your policy.
What are some FAQs that most People Ask?
As with any insurance product, there are always questions being asked because everyone’s needs are typically different. Here are some FAQs about Mortgage Protection Insurance:
- Who does MPI cover? MPI covers the insured person or persons and not the home or the lender.
- What does MPI cover? MPI covers the life of the insured person or persons in the event they die during the policy period.
- Who gets the death benefit? The death benefit is paid to the designated beneficiary or contingent beneficiary if the primary beneficiary does not survive the named insured.
- Will my insurance payment go down as my mortgage balance goes down? With a level term Mortgage Protection Insurance policy, your death benefit does not go down, so neither will your periodic payment.
- What if I refinance or change lenders? Your Mortgage Protection Insurance covers your life so who the lender is doesn’t matter. If you refinance your loan, the balance will typically be close to the original amount of the loan and your insurance should be sufficient.
- What if I sell my home and by another one? If you sell your home and then purchase another one with a much higher mortgage. You should consider buying an additional term insurance policy to supplement your Mortgage Protection Insurance policy.
What if I become disabled and cannot Work?
This is a very good question because adults age 50 or younger have a greater chance of becoming disabled and unable to work than dying unexpectedly.
Many of the insurers that offer Mortgage Protection Insurance also offer a disability rider that will pay a monthly sum to policyholders who become disabled. The amount of your monthly benefit and the duration of payments will depend on the insurance company you select.
What other riders should I Consider?
Insurance riders are optional coverages that you can add to a life insurance policy in order to broaden your coverage and get living benefits. It is the best way to customize your policy to meet your individual needs and the needs of your family.
Critical Illness/Chronic Illness Rider
These riders provide for the insurance company to pay a lump-sum payment if you are diagnosed with a covered illness.
Return of Premium Rider
The return of premium rider is very popular for young families who are typically concerned about outliving their insurance company and then having nothing to show for it. When you add the Return of Premium (ROP) to your Mortgage Protection Insurance, the insurance company is obligated to return the entire premium you’ve paid on your policy if you are alive when the policy expires. Your big fat return of premium check is tax-free and you can spend it however you wish!
Other Insured Term Rider
This optional rider allows the applicant to add a spouse to the policy with term insurance coverage up to the limit for the primary insured.
Children’s Term Rider
The children’s term rider allows the primary insured to provide term insurance coverage for all dependent children in the household and children that are born or adopted by the insured after the policy has been issued. Eligible children must be unmarried and age 15 days through 18-years old. Coverage terminates at age 25.
How do I find the best rates on Mortgage Protection Insurance?
We know that 20 years ago you would be on the phone most of the day to find the best rates for Mortgage Protection Insurance. Now, the internet will cut your shopping from all day to about 1 hour or less. There are thousands of experienced insurance agents across the country and most of them have websites with an instant quote form so you can shop your policy with multiple carriers at one time.
All you do is provide non-personal information and click submit and you will be taken to another page that lists the best prices from about two dozen insurance companies. This will typically not be your final rate but it will provide a very good indication of what you’ll be paying for life insurance.
You can then contact the agent and complete the application over the phone and get a final rate for you to consider. If all goes well (and it usually does) you could easily have your policy in place in a week or two, not a month or two.
Which Companies offer the best Mortgage Protection Insurance?
Actually, any life insurance company that offers Term Life Insurance can be used to set up a Mortgage Protection Insurance plan but there is a subset of those companies that offer the important riders that should be considered part of your plan. Remember, these option riders allow you to broaden your protection and have access to living benefits. They allow you to customize your mortgage protection insurance to meet your specific needs and budget.
AIG American General
AIG’s American General Life Insurance is one of the largest insurers worldwide and is currently serving over 13 million policyholders. While they have been in business for over 160 years, they have proven to be an excellent choice for any type of life insurance and are rated very high by AM Best.
American General has very competitive rates for term life insurance that would form the foundation for your Mortgage Protection insurance.
Assurity Life is another highly-rated and well-known life insurers that offers Mortgage Protection Insurance. They specialize in offering competitive Mortgage Protection insurance with many available riders to customize your policy to meet your needs.
American National, founded over 100 years ago has evolved into a highly-rated insurance carrier that offers a large portfolio of insurance products. They have a large portfolio of insurance products that includes very competitive term products that are a perfect platform for Mortgage Protection Insurance.
Foresters Life Insurance Company is a fraternal benefit company that focuses on helping its members with everyday financial challenges. The Foresters Term Product is an excellent way to purchase Mortgage Protection Insurance with terms of 10, 20, or 30-years with guaranteed rates. Foresters offers a fully underwritten and non-medical term product.
Mutual of Omaha is one of the most recognized names in Life Insurance in America. The Term Life Express product offers significant protection for you to leave the funds needed to satisfy your mortgage in the event of your death. They also offer many bells and whistles (riders) so that you can broaden your coverage and get additional living benefits.
Protective Life is another highly-rated life insurer with roots planted more than 100 years ago. They are a value-driven company that offers a complete portfolio of life insurance products and are very competitive in the marketplace. Protective offers term life insurance starting at about $7.00 a month which leaves a lot of room in your budget to add valuable riders like critical illness and disability income.
With A+ ratings at A.M. Best, S&P, and Fitch rating services, North American offers Mortgage Protection with face amounts up to $1,000,000 with no medical exam requirement. Their pricing is highly competitive and in many cases can get your policy approved and ready to issue within an hour. We talked about paying your home off early, we were referring to cash value life insurance like indexed universal life insurance. North American is a winner in this space.
As another 100-year old insurance company, Midland National understands the risk of leaving surviving loved ones with the burden of a mortgage payment should the primary breadwinner pass away. Although there are many uses for affordable Term Life Insurance, making certain your most valuable asset can be paid off in the event of your death should be at the top of your list. Midland National offers highly-competitive term insurance rates along with outstanding customer service.
Lincoln National is a highly-rated life insurer that offers a complete portfolio of insurance and financial products. They are currently ranked #205 on the Fortune 500 list of companies for revenue and ranked 24th for the value of assets.
Lincoln offers TermAccel with up to a $1 million death benefit with no medical exam requirement through their accelerated underwriting program. Their LifeElements term policy allows you to purchase face amounts of more than $1 million if you are 30 to 54-years old. Qualified applicants can purchase coverage with no lab work.
Transamerica is a very well known company in the American insurance marketplace. Their iconic Pyramid shaped building on the San Francisco skyline is a testament to the size of the company in the insurance industry. Transamerica’s term products are a perfect fit for creating a well-rounded Mortgage Insurance Plan because of their competitive pricing, various riders, and outstanding customer service.
How Much Does Mortage Protection Insurance Cost?
Like any other life insurance product, Mortgage Protection Insurance rates are primarily based on your age, health, if you smoke and the policy death benefit (face amount). Although the insurers we’ve listed above provide very similar policies, the rates differ for each company depending on the insurance costs and operation costs.
To provide you with a very close estimate for Mortgage Protection Insurance, we are posting the actual rates provided by Assurity Life Insurance Company.
These rates are based on a healthy non-smoking male with a $300,000 30-year mortgage:
|Applicant Age||$300,000 Coverage||*Disability Income $1,000||**Accelerated Death Benefit||Total Monthly Premium|
*The disability income benefit rider provides for the insurer to pay the named insured a monthly benefit of $1.000, after the waiting period, if the insured becomes totally disabled before the insured turns 65-years old.
** The Accelerated Death Benefit provides for the insurer to pay the named insured an accelerated portion of the death benefit up to $250,000 if the insured becomes terminally ill or expected to live in a nursing facility until death. The remaining face amount must be at least $10,000.
Assurity Life Insurance has several other riders available that will likely meet the needs of the applicant and fit within his or her budget as well. These additional option riders allow the policyholder to broaden their coverage and add living benefits to their Mortgage Protection Plan. Contact the professionals at InsuranceQuotes2Day for more information about the available riders and the additional premium required to purchase each rider.
Who Should Consider Mortgage Protection Insurance?
- All new homeowners
- Any homeowner that has life insurance only through their workplace
- Any homeowner that has individual life insurance but did not consider the amount of their mortgage when they calculated their life insurance needs.
- Any homeowner wanting to make certain that their mortgage is paid if the pass away or who is concerned about their ability to make their mortgage payment if they become disabled.
Who Might Pass on Mortgage Protection Insurance?
- People who have a paid-for home
- People who are renting and not buying a home
- Anyone who has enough life insurance to meet the financial needs of their surviving loved ones and pay for their outstanding mortgage.
- Single people without children and no surviving loved one who would need to continue living in their home.
The Bottom Line
Life insurance is not for everybody. In fact, about 40% of adults in American do not carry life insurance on a regular basis. These are the risk takers in the world who may have the resources to replace what a life insurance policy provides.
But, if you are a homeowner or first time buyer with a mortgage payment that can make you feel uneasy knowing that your income is required to make the payments each month; you should consider Mortgage Protection insurance to get that peace of mind knowing that your family will be okay if you’re are no longer in the picture.