Mortgage Insurance
There are two types of insurance policies that are not always compulsory but advisable to consider when one signs papers for a mortgage in order to protect them from default in the case of unforeseen circumstances, mortgage protection insurance, and mortgage life insurance.
In some circumstances especially when a policyholders finances are stretched extremely tight, a lender may require that the policy holder enrol in a mortgage protection insurance policy to ensure that if unemployment or medical problems arise the loan will not default and the policy holder will be able to maintain their repayment schedule.
The basic role of mortgage protection insurance is to protect the policy holder if they become unemployed or face a medical emergency that prevents them from being able to work. If enrolled in such a policy, the policy holder is protected from one year to two years if they are made redundant or become unable to work due to health problems as the insurance will begin making mortgage payments in their place, on average about a month after they file loss of employment.
A mortgage protection insurance policy will not cover a policy holder that voluntarily takes redundancy, is dismissed from their job from misconduct, or those that are forced to leave their jobs due to stress or back injuries, which are the biggest reasons that workers quit.
In terms of illness, a mortgage protection insurance policy will also not cover you if you become ill from a pre-existing condition before the policy was taken out, or in the case of pregnancy unless there are complications with the pregnancy that prevent long term employability.
On the other hand, a mortgage life insurance policy also protects a policy against an unforeseen circumstance, which in this case is premature death before the mortgage term is complete. In the case that the policy holder dies, the policy will pay out the outstanding sum due on the mortgage.
There are two ways to purchase a mortgage life insurance policy, on a term basis which is usually 20 to 30 years and is one set rate that is inexpensive and consistently set throughout the duration of the mortgage. This is the most popular type of mortgage life insurance policy in modern times due to the fact that if the policy holder outlives the mortgage term they are reimbursed every payment made.
The other way to purchase a mortgage life insurance policy is based on the annual rate of cover which is recalculated every year so that the cover is in line with the total sum of the mortgage. Thus, it is an expensive type of coverage at first and gradually decreases as the mortgage amount decreases. In this case you do not receive any money back if you outlive the mortgage.
Additionally, the better mortgage life insurance policies will include a critical illness benefit which may result in a slightly higher premium but provides a cash payout of the mortgage before death if the policyholder is diagnosed with a critical illness by a doctor that is expected to result in their death before a year’s time.
