Mortgage payment protection is a simple, low-cost way to purchase long-term peace of mind for you and your family. If you can’t work due to sickness, unemployment or an accident, mortgage protection plans will help pay your mortgage - and policies start at a much lower cost than you might think.
The idea behind mortgage protection insurance is straightforward: You pay a premium, which remains the same for the duration of the policy. If you die during that time, the insurance pays off the rest of your mortgage. The borrower pays for the coverage, but if the loan is defaulted, the lender is the policy’s beneficiary.
As you pay your mortgage off, the amount your policy pays off goes down. Even so, your policy premiums remain the same because the payments have been calculated with the decreasing death benefit in mind.
A downside to mortgage protection coverage is the death benefit pays only your mortgage balance, and perhaps a bit more if you were ahead on your mortgage payments. With a term life insurance policy; however, your beneficiaries have much more flexibility.
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Don’t confuse Mortgage Protection with Private Mortgage Insurance. If you’ve purchased a home with less than 20 percent down, your lender probably required you to purchase “Private Mortgage Insurance” or PMI.
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While Mortgage Protection Insurance will pay off your loan when you die, Private Mortgage Insurance only covers a portion of your loan if you default.
PMI might make it easier for you to get a loan, but you need Mortgage Protection or another form of life insurance to guarantee your loan is paid off should you die prematurely.
