Mortgage Life and Disability Insurance – Know The Basics Before Choosing

In short, mortgage life and disability insurance are insurance plans that protect your home in the event of becoming disabled or death occurs.

Mortgage Disability Income Insurance

Mortgage disability is a safety net of sorts in that if a person becomes permanently disabled and they hold a mortgage disability income insurance policy, you are eligible for monthly benefits to cover the cost of your mortgage and some living expenses. Mortgage life insurance helps the remaining spouse or family members to pay the mortgage payments of the deceased.

There are exclusions and limits on mortgage disability income insurance. A person must be permanently disabled and fulfill the full elimination period, or the timeframe between when you become disabled and when you start receiving benefits.  A person must remain completely and permanently disabled during the time frame they are receiving benefits. Prices of mortgage disability income insurance policies will rise according to the insurer’s age at the time the policy renews. The policy can renew up to age 67.  Other exclusions or limits that will affect the payout of the policy include: normal pregnancy, attempted suicide, pre-existing illness or injury, illness or injury resulting from drug use, or injury sustained while committing a felony or participating in riotous activities.

Mortgage Life Insurance

Mortgage life insurance is an insurance policy that will ensure that the loved ones left behind are able to keep making mortgage payments on their home.  When the policy is paid out, the money will go towards making the mortgage payments. Mortgage life insurance policies can be taken out for 15 or 30 years. These policies are tailored to fit the insurer’s needs based on their mortgage payments and the amount of the mortgage balance. The amount of the policy will decrease after five years but it will never be lower than 20% of the original amount of the policy. On policies that are set to pay off a mortgage, upon the death of the insured, the insurance company will send the amount of the policy to the mortgage company.

Problems of Mortgage Disability Income Insurance and Mortgage Life Insurance

There are downsides of both mortgage disability income insurance and mortgage life insurance. Mortgage disability insurance has numerous limitations and exclusions that rend the policy useless should your disability fall within one of the limitations or exclusions. Also, a person must remain disabled for the life of the policy and if they are found working or are no longer disabled, the policy will stop paying. Mortgage life insurance is only needed for those with a mortgage. If a person owns their own home, they do not need mortgage life insurance. The cost of the policy will decrease after a certain number of years. The policy is essentially tax free if it is paid out as a lump sum to the mortgage company. For those who receive payments over a period of time, the money is considered taxable income.

For many people, mortgage life and disability insurance are excellent tools to have.  Most people have a mortgage payment and when the unexpected happens, either death or disability, it is wonderful to have a safety net to ensure that their home will continue to be paid for. When an injury or illness happens suddenly and a person is unable to work, many times they lose their home and other assets. The same is true for those who pass and leave large mortgage payments behind for their loved ones to handle. Having these insurance policies will enable people to retain their homes even in times of crisis.

Filed in: Home Insurance

Leave a Reply