For most people, purchasing a home is one of the most significant achievements. It is always a good investment. However, there are times that a family loses the breadwinner. It will wreck the financial stability of a family. In worst cases, some families lose the chance to stay in their beloved homes.
There is a way for a homeowner to protect their property if he/she is unable to pay for the mortgage. Mortgage protection insurance (MPI) is different from Homeowners Insurance. MPI will be a person’s helping hand when they can’t pay for the mortgage.
There may be a limited number of things when it comes to mortgage protection insurance. However, many things a person needed to know before deciding whether to get an MPI or not.
Below are the things a person needed to know before acquiring mortgage protection insurance:
What is Mortgage Protection Insurance?
Mortgage Protection Insurance (MPI) is a kind of life insurance or disability insurance. It is insurance that pays for someone’s mortgage when they die or become disabled. However, this option covers some policies and usually for a limited time only.
In general, MPI Policies covers the principal and interest of the mortgage payment. On the other hand, some fees such as Homeowners Association Fee (HOA Fee), homeowners insurance, and property taxes are still the person’s responsibility. But, he/she can add a policy rider that will cover the extra expenses.
Note that mortgage protection insurance (MPI) is different from private mortgage insurance (PMI). This one protects the lender if one defaults on the loan. The family would still have a balance of the loan if the breadwinner died.
There are some policies under MPI that are designed to help those people who are living under someone’s roof. Those people will be the ones who will benefit in the event of the breadwinner’s passing. For example, if the breadwinner died with a balance on their mortgage and acquired an MPI policy, the insurer will be the one who will pay for the remaining balance.
The parents, partner, or children won’t have to worry about paying for the remaining balances or in the thought of losing their home.
On the contrary, there are some policies designed to reduce the monthly mortgage payments. These can be acquired if the person loses his/her job or encounter a severe disability that will prevent him/her from working.
The conditions for these policies may vary. For example, some bank or insurance company gives 50% to 100% coverage for the person with a disability. Sometimes, it will only last for two years. On the other hand, they can give 50% to 100% coverage for someone who lost their job. It only lasts for six months.
Some policies require waiting periods, like 30 or 60 days, before payment is due.
Does a Person Need a Mortgage Protection Insurance?
Well, having Mortgage Protection Insurance sounds promising, but it is not required. It is also not always a good move, financially. It can be a waste of money if someone purchases mortgage protection insurance, especially if they have sufficient life insurance.
There are some similar coverages if a person gets the right life insurance policy using the debt, income, mortgage, education, or DIME method.
A person can apply the DIME Method using the following:
- First, add all the outstanding debt, including the mortgage balance, income, and the children’s estimated education expenses.
- Then, from that sum, subtract any existing insurance coverage. If the person has a surplus, they have enough coverage. On the other hand, if the person has a shortfall, that is the amount of life insurance they have to purchase.
Advantages of Mortgage Protection Insurance
A house is always an investment and an essential need for someone and his/her family. It is an important asset. That’s why having mortgage protection insurance will ensure your family to have financial security.
The advantages of having mortgage protection insurance include:
- Guaranteed Acceptance/Approval.
Most of the MPI policies are issued with a “guaranteed acceptance.” That means that even a person with poor health or a job can get an MPI without having medical exams. It’s also for people who pay high rates to get life insurance or for those having a hard time acquiring a policy.
- Protection for people with disabilities.
There are times that people who work for the sake of their families face an accident. This accident makes them disabled that prevents him/her in working. Some MPI policies create mortgage payments for people with disabilities or to those who lose their jobs.
- Peace of Mind.
A layer of financial security gives the people peace of mind. They don’t have to think or worry if they lose their job. It provides financial protection for the family.
Disadvantages of Mortgage Protection Insurance
Although mortgage protection insurance is a good thing, there are a lot of reasons to weigh in. There are things to consider in getting Mortgage Protection Insurance.
The disadvantages of having mortgage protection insurance include:
- Another expense.
A premium of MPI is expensive that it will create a hole in your monthly budget. It is another burden to the funding of your family.
- Limited benefits.
In some policies, mortgage protection insurance has limited usefulness. When the mortgage is nearly paid, paying for an MPI policy is not a good use of your money. It is better to put his/her money in an emergency fund or for retirement plans.
Another thing is when someone wants to make extra payments to pay off their mortgage earlier than scheduled. That person may not benefit as much from mortgage protection insurance because the loan payoff amount reduces.
- There are better options. Life insurance is much better than mortgage protection insurance because it will go directly to the beneficiaries. They can decide where to allocate the money, can be for a mortgage or other things.
- Not that flexible. Mortgage protection insurance does not give a lot of options for the family. That is because it’s the kind that is for the mortgage only. If you’re on a tight budget, getting other policies might not be possible.
Thus, there is nothing left for medical insurance, life insurance, and other essentials for the breadwinner’s loved ones.
- There are age limits. Mortgage protection insurance policies have a lot of restrictive age limits. Some insurers will not give a 30-year MPI policy to someone over age 45.
Where Does a Person get Mortgage Protection Insurance?
Now that we already know everything about mortgage protection insurance. A person probably knows if an MPI is perfect for their family and it is what they need. It is essential to know your options in terms of deciding your actual mortgage. Comparing choices and weighing their pros and cons is the key.
Mortgage Protection Insurance is not typical and not easy to reach. A person needs to do their research about companies who offer it. Compare the features and prices of different MPI policies. It is essential to understand the policy’s coverage before deciding if it is best for your family.
While the person is doing their research, it is also best to know what is best for their family. Someone can find a better and suitable for their situation than the other. A person may find life insurance better than MPI. While doing your research, try comparing the two to know.
For people who have difficulties obtaining life insurance, maybe MPI can protect your home. It will provide financial protection for your loved ones and worth it for everyone. It is crucial to get the right price and contact an insurance agent to see if a person can qualify for MPI.
If a person would analyze it, life insurance and mortgage protection insurance are almost the same. It protects your family from the burden of paying for things. Although your family is not the beneficiary, there still a huge relief when a person does not have to pay for the mortgage. It is still worth it.
To Wrap Up!
A lot of people lose their homes because they were not able to pay for their mortgage. It is one of the most considerable debts a person can have in a lifetime. It is better to be prepared when the time comes. Mortgage protection insurance will protect your family from getting an enormous debt. It is a huge relief to know that your family is secured in keeping your home.
A mortgage protection insurance is a good backup for the sudden death of a breadwinner. It will make the family secure and protected against mortgage debts. A person can still take care of and support their family members in the form of MIP policies.
It is essential and an alternative for those people who cannot afford any life insurance. At least, the hard-earned house can be protected and cannot get from your family. All kinds of insurance are for the future of your family. It is for the sake of everyone’s future.
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