Most of us buy a house not just for self-gratification. Yes, it is true that owning a home boosts our self-esteem, but this isn’t the primary reason we take on a mortgage in order to purchase and keep our dwellings.
A shelter is a basic human need. While a home may be one of the biggest investments you’ll ever have to make, it also is a necessity which you and your family can benefit from.
In order to keep your home, you need a stable income. Your family depends on it to make mortgage payments. But what if one day, you pass away. Who can your family turn to?
They may struggle to keep making mortgage payments, and eventually lose the place they call home.
There is one way to keep that from happening. You can protect yourself, your home and your family from this unfortunate event by taking a Mortgage Protection Insurance.
What is Mortgage Protection Insurance and how does it work?
A mortgage protection insurance is basically a type of life insurance policy. If you or your borrowing partner dies during the course of the mortgage term, this policy will continue paying off your mortgage.
If the insured dies, the insurance company will take over paying your mortgage directly to your mortgage lender.
There are two types of mortgage protection insurance. You have the ‘reducing-term coverage’ which is the most common. The other one is the ‘level-term coverage’ which can be more expensive than the former.
In a reducing term coverage, the cover offered by the policy reduces as your mortgage balance goes down. Once you have completely repaid your loan, the insurance coverage will also hit zero. This is why it is the more affordable option among the two types.
On the other hand, in a level-term policy, the amount that you are insured for will remain the same, or will “stay at the same level.” It covers you with the same amount of benefit throughout the length of time as your mortgage.
The premium you will have to pay will also remain the same. This is why it can be more expensive than the first type of mortgage protection.
Why is it beneficial?
In the event of a death of the insured borrower, the mortgage protection insurance guarantees that your family covered with a benefit that will help fund mortgage payments. It is a tax-free benefit.
This will help them keep the house by ensuring that the mortgage is still paid directly by the insurance provider.
You have the freedom to choose the coverage you want to take. Your mortgage lender may offer to arrange for you a mortgage protection insurance. However, you are not required to take this offer if you take a mortgage loan from them.
You are free to shop around and choose a policy that best fits your needs.
There are many different forms of mortgage protection insurance. Some policies may also cover your loan payments in the event of a job loss or becoming disabled.
However, do not confuse it with Private Mortgage Insurance. A private mortgage insurance has nothing to do with death, job loss or disability. Its benefit kicks if your home reaches foreclosure by paying the lender.
When you are planning to purchase a property, it is also best to study how mortgage insurance policies can help you in homeownership. Will it help you keep your home in the future? Is necessary so that you are ensured during adverse situations that may put your home at risk?