Mortgage protection insurance comes in a variety of formats. Each is designed to provide coverage in the event of a specific incident. Private mortgage insurance is designed to protect the lender if a borrower defaults on the loan. Mortgage protection plans, on the other hand, are purchased to provide protection to the homeowner in the event of death, disability or sudden job loss.
Private mortgage insurance is required for borrowers who are unable to come up with a down payment that is at least 20 percent of the home’s sale price. Since the lender is assuming a higher risk due to the buyer’s lower initial equity, private mortgage insurance pays the amount of the outstanding loan if and when default occurs. This type of mortgage protection insurance is usually figured into a borrower’s monthly mortgage payment and is paid directly to the lender.
A separate mortgage protection plan is available to directly protect borrowers in case they are not able to make their monthly payments. Choosing which type or combination to purchase depends on the borrower’s anticipated needs. Homeowners who have families that consist of several dependents might want to consider mortgage life insurance.
In the event that a homeowner dies, mortgage life insurance protection will pay off the remaining loan balance. While this type of mortgage protection insurance might not make much sense for singles, a young head of household “breadwinner” would benefit greatly from the plan. It would ensure that the family still has a place to live despite the sudden loss of life and income.
Mortgage disability insurance pays the monthly mortgage payment if the borrower suddenly becomes disabled and is unable to work. This type of insurance is probably not necessary for those who already carry a disability policy through their employer. Any separate disability policy will cover a percentage of your salary, which will help you continue to make the payments on your mortgage. For those in high-risk, physically demanding jobs who do not carry a separate disability policy, this type of mortgage protection insurance might be worth consideration.
Another type of mortgage protection insurance is unemployment insurance. This covers your monthly mortgage payment if you suddenly lose your job. Those without substantial savings or the discretionary income to regularly contribute to a savings account might find this type of protection beneficial.
Choosing any mortgage protection insurance plan involves comparing rates from multiple sources. Look at exactly what each policy covers as some companies offer combined packages. For example, one plan might include life and unemployment protection while another provides only one of the two available coverages.