In typical monthly mortgage payments, they usually consist of two types of insurance: the homeowner’s insurance and the private mortgage insurance. The former pays for your losses if your property gets damaged by Acts of God.
On the other hand, the PMI is required when you don’t pay at least 20% of the property’s price upfront. It protects the lender against financial losses if you default on your loan, and the property goes into foreclosure.
However, neither type of insurance would pay your mortgage if you pass away or become incapacitated before it matures. Any reputable residential mortgage lender would tell you to need mortgage protection insurance for that. It’s not required, but getting it might be worth your while to prepare for the unexpected.
To fully appreciate it, let’s answer the most common questions about it:
What Does It Cover?
Primary Residential Mortgage, Inc. shares that mortgage protection insurance policies vary, but they share similar features. All of them provide a death benefit, which pays offs the remainder of your loan in case, you know. They usually have disability coverage, finishing your mortgage if you could no longer work.
If you become severely ill, you can receive a portion of your death benefit in advance to trim your mortgage balance. Some policies come with unemployment coverage, which would help you keep up with your monthly payments until you find a job.
What Happens to Your Mortgage If You Pass Away Uninsured?
If you pass away without mortgage protection insurance, your monthly housing payments will go on. Your heirs would then be responsible for taking over the loan. If you have other assets, you can state in your will to sell your other assets to pay for a mortgage so your surviving loved ones would get the property free and clear.
But if you leave no sellable assets, and your heirs can afford the monthly payments, your lender might foreclose on the loan. Like regular life insurance, mortgage protection insurance is designed to give you peace of mind knowing your loved ones wouldn’t deal with mortgage problems after you’re gone.
What Can You Do with Your Unused Payments?
If you finish paying the loan without using any of its benefits, you may get the premiums back. But then again, make sure your policy includes a money-back option to guarantee you’re entitled to claim for a refund.
The mortgage protection insurance would increase the true cost of your mortgage, but discerning homeowners consider it a worthwhile expense. But while it’s important to plan, it’s also wise not to exhaust your cash reserves for things you don’t actually—at least for now.