Securing Your Family's Future: A Simple Guide To Mortgage Protection Life Insurance

For many consumers, the insurance industry often comes off as a murky field with players always trying to make money off of unsuspecting policyholders. Signing those 15 or 30-year term policies always feels like a jail sentence, especially when consumers don’t read the fine print.

And for one specific insurance policy, the mortgage protection life insurance, you’re more at risk of making your family’s life worse than most other insurance policies, chiefly because of the amount of misinformation surrounding this policy.

You’ll probably bump into this type of insurance sometime after closing on a mortgage, often through calls or via stern, end-of-times emails with carefully worded pleas and solicitations meant to scare you into buying a mortgage protection life insurance policy.

So, what’s the true nature of this plan and will your family really become homeless when you’re no longer around if you don’t subscribe?

What Is It?

In its simplest form, the mortgage protection life insurance is designed to repay your mortgage debt when you, the policyholder, die.

They usually come in two types, one where the value of the policy will decrease in proportion to the outstanding mortgage premiums, often resulting in lower payouts towards the end of the policy.  In the second type, there will not be any change in the value of the policy, which is naturally what you should go for.

Over the past decade, mortgage protection life insurance plans have been on the receiving end from critics because of the higher premiums. However, these plans are often a welcome alternative for consumers who would be charged higher life insurance premiums because of habits such as smoking, a life choice that sometimes disqualifies customers from many life insurance policies altogether.

Analyze The Terms And Conditions

If you decide to go with mortgage protection life insurance policies, always read through the fine print.

Different mortgage protection life insurance plans often have varying levels of flexibility. The quickest way to differentiate between policies is reading through the fine print, which often gives you more information about details such as the plan’s lifespan and its financial benefits.

Cons and potential issues to look out for:

Declining value: Unlike traditional insurance plans, the protection offered by most mortgage protection life insurance plans will decrease with the reduction of the mortgage value. On the other hand, if you choose a traditional life insurance policy, the value will be constant throughout the term, providing a safety net for the future.

Beneficiary: When you choose a mortgage life insurance plan, the nominee of the policyholder will be the bank. For traditional life insurance plans, the nominee will be as per the selection of the policyholder, which usually means the beneficiary will have complete control over spending the amount. If the money is in the hands of the nominee, in this case your family, they can spend it however they see fit.

Critical illness rider: The mortgage insurance plan does not deliver the goods if the critical illness rider is not present in the policy. Therefore, you should always consider a policy that will give you real protection in addition to covering the mortgage payments.

Disability rider: The disability rider should be included in the insurance policy so that you get the claim for the mortgage even though the death risk is not met. If you fail to work due to disability, the insurance company should bail you out from the debts, even with any outstanding debt relief arrangements.

The Cost Factor

Finding online quotations for mortgage protection plans can be quite difficult, with wild price disparities and an opaqueness that seems to be standard among insurers offering these plans. However, with industry leaders such as Ellie Mae ELLI driving automation within this industry, there's hope that many previously obscure mortgage and insurance plans will become more transparent for the average American. 

Prices will also depend on the mortgage amount, age, and your health status. If you’re a smoker, for instance, your premiums will naturally be higher, but usually not as high or limiting as traditional life insurance plans.

Other factors such as additional riders will also affect the cost of your plan, so be sure to look at all options with your provider before making the commitment.

A Final Word

Even with all the controversies surrounding mortgage protection life insurance plans, they are still a valuable option for individuals who cannot benefit from life insurance plans. For people with high-risk jobs or chronic health issues, mortgage protection life insurance plans may be the only life insurance plan on the table, especially when traditional life insurance policies are too expensive because of said issues.