Mortgage Protection Insurance – Do You Need It?

First of all, don’t confuse mortgage protection insurance with private mortgage insurance (PMI). Mortgage Protection Insurance makes sure your family can keep the roof over their heads if you die. PMI covers a portion of your loan if you default and pays the benefit to your lender.

You don’t have to carry mortgage protection insurance, but if you’re going to, you’re typically required to buy the policy within a set period after close of escrow. The time period will vary depending on the mortgage protection insurance company, so be sure you ask. As long as you have the policy in effect, your premiums won’t change and, if you die, your beneficiaries will receive a check – usually for the full amount of your mortgage, regardless of how much is still owed. (Here again, policies differ from carrier to carrier.) In general, it’s less expensive than life insurance (about $50 a month for a no-frills policy on a $120,000 mortgage, more if you add riders) and depending on the carrier, you may not need to take a health exam to qualify.

As an alternative to mortgage protection insurance, you might also want to consider term life insurance or whole life insurance, either of which will allow you to purchase larger amounts of benefits, whereas your mortgage protection policy will usually be capped at the initial price you paid for you home. The best choice can only be determined by weighing your personal circumstances.

By the way, don’t confuse mortgage protection insurance with mortgage payment protection, a kind of job-loss-protection coverage currently being offered by many new home builders and lenders as an incentive to get you past your fear of pink slip and back into home-buying mode. Basically, these policies will pay up to six months of mortgage payments (with caps ranging between $1,800 and $2,500 per month, depending on the policy). As incentives go, this one’s way better than a flat screen TV, but read the fine print, folks. Unlike the straight-forward mortgage protection insurance policies, mortgage payment protection may have some hidden costs or key exclusions. The builder may be tacking the cost of the premium into the home price, there may be a month-long waiting period from the time you get canned till the first payment kicks in, and typically these policies aren’t available to the self-employed or active-duty military.


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