What is Mortgage Protection Life Insurance?

Mortgage protection life insurance is an insurance policy that is taken out by a home buyer with a mortgage to cover the lending party against default of mortgage payments as a result of death or disability.  A few key points should be kept in mind regarding mortgage protection insurance before you sign up for such a policy:

How It Works

Mortgage protection insurance is actually a decreasing term insurance policy. In other words, since the outstanding liability of a borrower to the lender decreases over the course of time, the policy face value also decreases in the same proportion. The face value of the policy is always equal to the mortgage balance.

The purpose of such a policy is to help the bereaved family maintain their home even if the main person making the mortgage payment passes away or is severely disabled.

Terminal Illness & Critical Illness Coverage

Mortgage protection life insurance policies typically have built-in coverage for terminal illness and critical illnesses.  The insurance policy will pay out the policy to the lender and clear your mortgage.

The Policy Owner

The policy owner in a mortgage protection Life Insurance policy is the person who has taken out the mortgage. The premiums for the policy have to be paid by this person, and in most cases is built into the mortgage payment that the person makes to the bank.

The Beneficiary

In a typical mortgage protection life insurance policy, the death or disability benefit goes directly to the bank to offset the outstanding liability.

Exclusions

Mortgage protection life insurance policies pay out only when the policy owner dies, becomes disabled, or becomes critically ill as the result of which mortgage payments cannot be made to the bank. The insurance policy does not cover any other instances of insolvency, bankruptcy, or any other reason for being unable to make mortgage payments.

Alternates

Mortgage protection life insurance typically protects only the lender to pay off the outstanding loan in the event of death of the borrower. However, as a borrower, you can also consider signing up for a private life insurance product where your family receives the cash from the policy if you die or become critically ill. Unlike mortgage life insurance, private life insurance policies provide other benefits such as adjustment of coverage amounts, loans against the policy, a cash surrender value and many others.

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