Your home is one of the biggest investments you’ll ever make, which is why families carrying a mortgage often purchase mortgage disability and/or life insurance. If one of the breadwinners dies or becomes disabled, a mortgage protection insurance payout can help the family keep up with mortgage payments and stay in their home.
Mortgage life or disability insurance, also called mortgage protection insurance, can be a way to pay off a mortgage, but it doesn’t take the place of regular life insurance.
How Mortgage Protection Insurance Works
As the names imply, mortgage life insurance is a policy that pays off the balance of your mortgage should you die and mortgage disability insurance makes a monthly disability payment toward your mortgage should you become disabled. Mortgage protection insurance is sold through banks and mortgage lenders, including Citizens State Bank.
Pros
The biggest benefit of mortgage protection insurance is convenience as there’s often no medical exam required to buy a policy. If you’re denied term or whole life insurance because of medical conditions, a mortgage protection policy may be an option to financially protect your home.
Mortgage life and disability insurance can also act as a supplement to your other insurance policies – you know your mortgage is being paid while you use proceeds from your other policies to cover other expenses.
Cons
The biggest downside to mortgage life insurance is declining payout. The longer you have the policy, the more you’re paying down your mortgage balance, though the premiums often stay the same. If you choose this coverage, it’s important to include it in your annual mortgage review to ensure the cost is still worthwhile.
If you need to take advantage of your mortgage life or disability insurance, all funds go toward paying off your mortgage, meaning you don’t have the flexibility to spend the funds the way you want/need. (Some consider this a pro, though it depends on individual circumstances.)
As stated, Citizens State Bank does work with a vendor to offer mortgage life and disability insurance. Those policies are as follows:
Mortgage Life Insurance – Pays according to the group master policy schedule, subject to the plan maximum, when the loan balance is 100% insured. This mortgage life plan is subject to tobacco and non-tobacco user premium rates.
2 In 1 Life Plus – This plan features the same rates for all ages and is a low cost alternative to full mortgage life insurance. If death by illness, sickness or disease, it pays 24 monthly benefit payments to your mortgage lender, giving survivors time to decide what to do with the house. If death by accidental casus, the plan pays up to $100,000 according to schedule in group master policy, plus pays 25 monthly benefit payments.
Mortgage Accidental Death – This plan pays according to the group master policy schedule, subject to the plan maximum, when the loan balance is 100% insured. No physical exams or health questions to qualify. Everyone under age 70 automatically qualifies. An Accidental Death is one that results from an external bodily injury that occurs unexpectedly and suddenly without the insured person’s intent but includes smoke inhalation and drowning.
Mortgage Disability Insurance – Pays a monthly disability benefit payment up to plan maximum of $1,500 but no more than the total monthly mortgage payment at time of application. You are considered totally disabled when you are under a doctor’s regular care for an injury or illness other than mental, emotional, or nervous disorders; alcoholism or drug addiction (subject to policy exclusions) that prevent you from performing the substantial duties of your occupation.
As you can see, there are many options available, with pros and cons to each. To determine if a mortgage protection plan is right for you, talk to your lender or trusted financial advisor.
The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.
