Is Insurance Mortgage Protection Worth Buying?

While considering your needs for insurance, mortgage protection insurance, as a standalone policy may not be worth your investment. There are certain aspects of mortgage protection insurance that you should be aware of.  Consider other types of insurance policies that offer mortgage protection insurance.

The Mortgage Protection Insurance Product

Mortgage Insurance is typically a simple decreasing term insurance product, where the term is set to correspond to the mortgage term. The decreasing term aspect makes complete sense since the outstanding liability of your mortgage decreases as you continue to make mortgage payments. Since the policy is meant to cover only the outstanding loan amount, the face value decreases on a corresponding basis.
 
Mortgage Protection Insurance Limitations

Mortgage protection policies are very restrictive, and only pay out in specific cases where you as the borrower pass away, become disabled, or become critically ill. A major misconception is that mortgage protection policies payout when you are unable to make mortgage payments as a result of being laid off, or simply being unable to pay your mortgage for any other reason, but that information is false.

Mortgage Protection Insurance Policies Don’t Pay Your Family

Unlike a life insurance or disability insurance policy, where you as the policy owner and life insured are free to designate the beneficiary of the policy, the mortgage insurance policy pays the bank as the beneficiary of the policy, and not your family. You may not change this beneficiary designation.  A good thing to remember, however, is that your family will be reap the benefits of the payment because they will not have to continue making payments to the mortgage.

Mortgage Protection Policies Have No Residual Benefits

With mortgage protection policies, you can draw benefits from Cash Surrender Value, or CSV, which is refunded in a cancellation. Similarly, many life insurance policies allow you to borrow against the policy, and if the policy is paid out with an outstanding loan remaining on it, the outstanding loan amount is simply deducted from the death benefit. However, in the case of mortgage protection insurance, the policy protects only the lender, and has neither a cash surrender value, not the ability to borrow against it.

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