Mortgage protection insurance can save a house -- and more
By Insure.com | Last updated: Aug. 8, 2016
Taking out a mortgage can be a scary prospect. Now imagine if one of the
household's breadwinners dies. How will you make the payments?
Mortgage protection insurance covers this potential financial disaster.
You can purchase a policy when you first buy your home. Often you must buy it within a certain time period after closing escrow, generally up to 13 or 24 months. However, some companies may allow up to as much as five years.
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 out your death benefit.
"Mortgage protection insurance is a life insurance program that gives you special benefits
because you have a mortgage," says Andy Albright, president and CEO of National Agents
Alliance, the largest mortgage insurance broker in the nation.
The type of death benefit you receive depends on the type of policy you purchase. Mortgage protection insurance has evolved, Albright says. It used to be that your death benefit would
be the outstanding balance on your mortgage. But today, most mortgage insurance policies
are designed to pay out the full amount of your original mortgage, no matter how much you
owe. For example, let's say your mortgage was $100,000 at the time you purchased your 30-year policy. If you die 10 years later, your insurer will still cut your beneficiary a check for $100,000 — even if you now owe $67,000 on the home.
The beneficiary can use the money for anything — to pay off the mortgage in one lump sum, make car payments or put the money in the bank.
If you pay off your mortgage early, you keep the coverage until the term of your policy expires. Some insurers will allow you to turn that mortgage insurance into a life insurance policy, Albright says.