Mortgage Protection Life Insurance is designed to repay the mortgage debt when the policyholder dies. The mortgage policy is different from old-style life insurance policy. If you go for mortgage policy, the benefit will be paid when the policy holder dies. The benefit is not awarded if the mortgage is not existent at the time of death.
There are two types of mortgage policies. You should choose the best policy as per your needs. In the first type of insurance policy, the value of the policy will decrease in proportion to the outstanding mortgage policy. In case of second type of insurance policy, there will not be any change in the value of the policy.
Analyze the Terms and Conditions
Before buying the mortgage protection life insurance plan, you should go through the terms and conditions. You should consider your lifespan and the lifespan of the mortgage. If the financial benefits are less than the premium paid by the policyholder, you should not go for the mortgage policy.
A mortgage plan can be considered when you buy a new home or refinance an existing loan.
Insurance companies will suggest policies as per your needs. However, you should assess your needs so that you can make the most of your investment. The purpose of the policy is to protect the interests of the family members. If you fail to close the mortgage due to death, the family members should not be compelled to pay the loan. Hence, the mortgage protection program is offered by life insurance companies.
Cons of Mortgage Protection Life Insurance Plan
The following disadvantages may not compel you to choose the mortgage life protection plan:
- Declining value – Unlike the traditional insurance plans, the protection offered by the mortgage plan will decrease with the reduction of the mortgage value. On the one hand, you will repay the loan and the mortgage value will decrease. If you choose a traditional insurance policy, the value will be constant throughout the term.
- Beneficiary – when you choose a mortgage life insurance plan, the nominee of the policyholder will be the bank. When you choose a personal life insurance plan, the nominee will be as per the selection of the policyholder. The beneficiary will have the complete control on spending the amount. If the money is in the hands of the nominee, it can be spent as per the needs.
- Critical illness rider – The mortgage insurance plan do not deliver the goods if the critical illness rider is not present in the policy. Hence, you should consider a policy that will give you real protection and mortgage should be covered by the policy.
- Disability rider – The disability rider should be included in the insurance policy so that you will 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. Hence, you will not want to go for mortgage protection life insurance plan.
Cost of Mortgage Protection Plan
Before buying a mortgage protection plan, you should evaluate the cost of the product. There are various factors which influence the premium. These factors include amount of mortgage, age and health conditions. With the inclusion of additional riders such as critical illness and disability, the premium cost will increase. You should understand the fact that the age factor will also have an impact on the premium when you consider the critical illness and disability riders.
Risks of Mortgage Protection Plans
The payments will go to the mortgage company directly. There might be a waiting period of one or two years as well. The mortgage expenses are not borne by the protection plan. The coverage applies to the principal and the interest.
You should file an application to get protection for your mortgage debt. The health condition will be assessed by the company and the insurance will be awarded upon the satisfactory fulfillment of the important questions raised by the insurance company.
If you are working in high-risk job portfolio, the mortgage protection plan will not offer the required protection. Even though you pay the premium on a regular basis and retain the policy in force, the insurance company may not pay the claim when the policyholder fails to fulfill the requirements as recommended by the law.
The mortgage plan is a type of life insurance plan wherein the real benefit will be enjoyed by the mortgage company to fulfill the debts against the mortgage upon the death of the policyholder. The mortgage protection plan cannot be subscribed when you do not have health risks or job risks. If the traditional policy is very much expensive, you might want to consider the mortgage protection insurance plan after assessing all the relevant factors.