Mortgage Life Insurance

Mortgage payment protection insurance covers monthly mortgage payments for a short term when the policy holder is not in a position to make payments due to poor health conditions, involuntary unemployment, or physical injuries caused by accident or sickness. Unlike mortgage protection life insurance, MPPI will not pay out a lump sum loan amount, neither does it pay when the insured party dies. MLINS09©

Mortgage payment protection insurance generally covers the minimum mortgage payment for up to 12 months or until the person has recovered from the incident, whichever happens first. This protection is very similar to those credit protection offers you get form credit companies that charge a small fee every month and cover your credit card payments when you are unemployed or suffer from health related injuries. The difference here is that the policy will only cover monthly mortgage payments instead of credit card payments.

Mortgage payment protection insurance is one of the aggressively marketed insurance products around. If you get a sales pitch when you are buying some other assets or loans like mortgage loans, bank loans, property title etc. don’t purchase before you do your research. Such offers tend to be more expensive than those sold through independent financial advisers.

Who needs Mortgage payment protection insurance

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• If your company or industry is performing poorly and if you think your job might be impacted, you should consider some kind of insurance protection. However, please note that If your company has already announced lay offs, you may not be able to purchase and then claim the insurance benefits. Insurance companies will not provide coverage in such a scenario. They may also require that you to make at least 3 to 6 months of payment before you claim any benefits.

• If you have a single source of income and have dependents or small children, you may want to consider buying the insurance depending on the macro economic conditions.

• If you do not have sufficient savings to cover mortgage payments and are not certain about the long term job stability, MPPI maybe for you.

• If you have saved 6 to 12 months of living expenses in emergency funds and your job is fairly stable, you may not need the payment protection policy.

Insurance needs vary depending on your personal situation. It is a good idea to consult a financial advisers once in a while to re-asses your insurance requirements including your health insurance. After all, you may just need a mortgage life insurance which is the major living expense you need to worry about.

Mortgage Life Insurance and Mortgage Payment Protection Insurance

The main difference between the two is that mortgage life insurance will have a designated beneficiary who will receive the money to pay off the mortgage completely. Mortgage payment protection will not have beneficiary. Instead, the insurance policy holder will get assistance from the insurance company to make monthly mortgage payments for a short while, typically for up to 12 months. MPPI is meant to provide temporary relief when you are out of work due to sickness or involuntary unemployment. The mortgage payment protection insurance cover can be added to the life insurance so that you will have single policy offering comprehensive coverage.

In the event of a job loss, you are eligible to receive unemployment insurance from the State unemployment agency, but those benefits are not enough to cover even the living expenses for most people. If you own a house, you want to protect your house so that you don’t need to worry about finding roof to live under and instead you can look for a new job and think about how to pay bills. Unemployment mortgage protection insurance essentially covers your mortgage payments while you are unemployed. The coverage is not on permanent basis. As soon as you find a job or if you exceed the maximum allowed period, insurance will stop paying. MLINS09©

Depending on the extent of coverage you choose, job-loss mortgage protection policies cover all or part of your monthly mortgage payments. Many policies will cover 6-8 months of mortgage payments in a year. Most policies do not pay until 30 days after you are laid off and may require you to show proof of unemployment.

Most insurance companies do not pay if the mortgage owner loses jobs within 6 months of buying a mortgage protection policy. This clause is added because insurance companies do not want borrowers to sign up for a new policy if they anticipate a lay off in the company (without this protection, insurance providers may incur big losses and may have to file for bankruptcy in an economic downturn. In 2008-09 several companies declared bankruptcy or received government bailout funds in order to survive)

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Policy premium and payout varies based on the insurance provider and your coverage needs. A typical policy that insures $1,000 monthly mortgage payment and covers up to 6 months of payment will cost you about $50. If your payment is $2,000 per month, you will pay a premium of $100 per month. Please note that only mortgage payment is covered by most policies. You will have to pay other expenses such as taxes, utility bills etc.

If the homeowner has emergency funds set aside to cover living expenses and mortgage payments for up to 6 months, then it may not be such a good idea to buy unemployment mortgage protection. However, if the likelihood of losing a job is high OR if you do not want to dip into your savings in such unfortunate events, you can buy this insurance.

In United States, this insurance should not be confused with the unemployment insurance offered by Department of Labor which pays a fraction of living expenses based on credits computed using your employment history. State unemployment agencies do not consider the fact that you have a mortgage or other obligations. The benefits earned are generally not enough to cover mortgage payments.

Difference between Mortgage Unemployment Insurance and Mortgage Disability Insurance

Unemployment insurance pays benefits when you lose your job involuntarily and covers a short period. Insurer generally pays for a maximum of 6 months or until you find a new job, whichever occurs first. Since most people will find a new job within 6 months, you are not likely to make full use of the benefits for the maximum allowed period.

Mortgage disability insurance will make mortgage payments on your behalf, if you become disabled due to an injury or sever health condition. This kind of insurance will generally make mortgage payments for a longer duration than the unemployment insurance. Benefits are paid for up to 2 to 5 years.

Mortgage disability insurance will pay your monthly mortgage payments when you become disabled. These policies will cover your monthly payments for 2 to 5 years or until you recover from the disability, whichever is sooner. You can add the disability insurance cover to your life insurance so that you will have a comprehensive coverage. While other kinds of insurances cover death, job-loss etc., this insurance coverage will come to your rescue when you cannot work due to physical conditions. You are buying a peace of mind knowing that you do not need to worry about your mortgage payment until you return to work. MLINS09©

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The insurance monthly pay out is generally between 60 to 70% of your monthly income. The payment is determined by your average salary, age, and the extent of coverage you choose. In many cases, the payment maximum is set to $2,000 for basic coverage. Review your monthly mortgage related expenses and figure out the amount of coverage you need. These days, most employers offer optional disability protection for a fee and in some cases it might be enough if you are looking for basic coverage.

Long Term Disability Coverage

Most mortgage disability insurance contracts will not cover the long term disability beyond 5 years. Be sure to check your policy to understand the coverage restrictions for long term disability. Most people do not need the coverage beyond 5 years continuously, unless they have terminal illness which is a very rare condition and conditions like that demand better health insurance coverage. Disability insurance will cover your monthly payments including the escrow payments such as county taxes, home owner’s insurance etc. However, the monthly payment you receive cannot not be greater than your monthly mortgage payments including taxes, home owner’s insurance etc.

You can receive disability benefits many times in your lifetime even though cause is same. However there will be restrictions such as 6 months quiet period. You may be permitted to apply for new disability only 6 months after your first disability period. Some companies do not have such restrictions. Check with your insurance provider for more details.

Mortgage Critical Illness Insurance and Mortgage Disability Insurance

While disability insurance and critical insurance are very similar products, there are some differences between the two. Critical illness insurance will pay a lump sum amount and supposed to provide sufficient funds for a longer duration. Disability insurance will pay monthly payments and the coverage will not last longer than 12 months. Disability coverage and premium is based on your work history, salary etc. while the critical illness coverage is based on family medical history and medical exams. The insurance pay out is generally tax free in both cases.

Mortgage life insurance and disability insurance

Mortgage life insurance pays out in the event of a death of the borrower, but may not pay during disability. Disability insurance will complement the life insurance so that you will have complete coverage. Take note that disability insurance cover can be added as a rider (additional clause) to the life insurance so one policy will cover all aspects.

Waiting Periods for Critical Illness Disability Insurance

Many mortgage disability insurance policies will have a waiting period (also called elimination period) ranging from 1 month to 3 years, before they pay your first or subsequent claims. The longer the waiting period, lower is your insurance premium. So by choosing a longer period, you can reduce the insurance costs, but ensure you have enough savings to cover the living expenses including mortgage payments if you are choosing longer periods.

Insurance companies reward you for choosing a longer waiting period so they can avoid those policy holders who purchase mortgage insurance knowing that will benefit from the policy sooner. A person with a critical health condition may buy a policy with immediate coverage is one such example. If you are a healthy person and have enough living expenses covered for several months, then you can save on insurance premium by choosing longer waiting period.

Important things to know about disability insurance

As always, do not choose an insurance product just because it is cheaper than its competitors. Do your research and ensure the company is in good standing and takes care of its customers. You can research online for customer reviews, company ratings, BBB ratings and rip-off reports for any company. Due diligence will pay off!

Apart from fraud concerns there are some important things your need to verify before you cut the check.

• Some disability insurance policies do not cover the incident if you are already covered by another similar policy. Disability insurance is generally offered by your employer for a group negotiated fee. If you have the coverage from the employer, the additional coverage you buy might not pay out due to this clause. Make sure you understand such restrictions. In some cases you may be better off getting additional coverage from your employer provided disability insurance, which tend to be cheaper if you work for a big company.
• Some policy terms dictate that you will be paid only if you become completely disabled. You should not choose such policies. Instead, make sure the policy will pay out if you cannot perform your regular work duties due to disability. That means regardless of the level of injury or disability, you will covered of you are not able to earn a living due to your physical conditions.
• Many of the reputed insurance companies like State Farm offer disability insurance. Start exploring your options from your auto or home insurer first.
• Review your social security benefits which might be enough if you are looking for basic coverage. Please note that social security coverage tends to be very restrictive and will pay out only when you are completely disabled.
• Disability insurance is meant for those who are working full time. If you are not on someone’s payroll or running your own business, you may experience difficulties with getting the coverage.
• The insurance premium is not tax deductible; however, the payout amount is generally tax free.

Mortgage life insurance protection plans are not actively advertised by major insurance companies although they provide some kind of mortgage protection or life insurance. One of the reasons for this is that the companies probably want to simplify their offerings. They offer the coverage mortgage protection plans through their term life or whole life policies instead of directly marketing mortgage protection insurance plans to the consumers. MLINS09©

If you are unsure what kind of mortgage protection you need, please refer to mortgage protection insurance which helps you understand different kinds of insurance policies available to you. First, decide what kind of insurance policy you need, instead of contacting the insurance agent directly. Some commission based agents may push sell you the plans that you may not be optimal to your situation. If you are unable to decide, you can at least get knowledgeable about all plans and ask the right questions when you contact the insurance agent.

As always, do your due diligence before you buy the policy. It is a good idea to buy the coverage from a reputed company even though it costs little more. Compare rates, get price quotes and make sure you check BBB ratings before you write a check. Finally, ensure your living will is updated with this policy information.

Mortgage Life Insurance Company Choices

Here is a list of major insurance companies that offer specialized mortgage life insurance plans. This is just a starter if you are not sure where to go and is not meant to be an exclusive list of mortgage insurance companies.

State Farm

State Farm is one of the leading insurance providers in US and Canada. Founded in 1922, the company now offers life insurance, auto insurance, and banking services. State Farm’s 17,700 agents and 68,600 employees serve 81 million policies and accounts – more than 78.7 million auto, fire, life and health policies in the United States and Canada, and more than 1.9 million bank accounts. State Farm Mutual Automobile Insurance Company is the parent of the State Farm family of companies. State Farm is ranked No. 31 on the Fortune 500 list of largest companies.

Nationwide

Nationwide is one of the largest insurance and financial services companies in the world, focusing on domestic property and casualty insurance, life insurance and retirement savings, asset management and strategic investments. The Nationwide family includes many affiliate companies covering life insurance, financial services, property and casualty insurance and asset management.

Over the last 80 years, Nationwide has grown from a small mutual auto insurer owned by policyholders to one of the largest insurance and financial services companies in the world, with more than $135 billion in statutory assets.

All State

The Allstate Corporation is the largest publicly held personal lines insurer in the United States. Allstate sells 13 major lines of insurance, including auto insurance, home insurance, life insurance, and commercial insurance. Allstate also offers retirement and investment products, and banking services. Its advertising campaign is centered around its “Your Choice Auto” product, which offers accident forgiveness and lower deductibles.

NAA Life

NAA life is not an insurance company, instead it provides you assistance with buying insurance. They represent number of insurance companies and financial products, not limiting you to a single company’s products. NAA Life offers financial products that will service your needs and are cost effective. NAA Life -