The Facts About Mortgage Payment Protection Insurance

Mortgage payment protection insurance is designed to do for your mortgage what disability insurance does for your pay check. Your disability insurance means you get paid even if you can't work; your mortgage payment protection insurance will make sure that your mortgage will get paid, again in the case that you can't work.

The difference between disability insurance and mortgage payment protection insurance is that the mortgage payment insurance will also cover you in the case of being laid off because of "redundancy", as well as accident, sickness or disability.

You need to get the level of coverage that properly covers you. Your mortgage payment insurance should provide enough income to cover all your monthly mortgage expenses. If you have a repayment mortgage, this should be your capital and interest repayment. If you happen to have an interest-only mortgage, the Mortgage Payment Protection Insurance should cover your interest payment as well as your normal monthly contribution to the investment vehicle that will repay your loan. It's that simple.

What are some of the reasons that some people are starting to take an interest in this kind of policy? Well, let's face it: our mortgage is likely our largest debt. Some two-income families could survive quite well on a single income if not for their mortgage payment. In the case when you or your spouse does not have disability insurance either through an employer or privately, a mortgage payment protection policy may be all that you need in order to ensure your family's financial stability.

Don't confuse mortgage payment protection insurance with mortgage protection insurance. In the US insurance market, these are two different products. Mortgage protection insurance is actually a kind of life insurance on your mortgage. For a flat monthly fee, if you or your spouse dies (assuming that there are two of you on the mortgage and deed to the home) then the mortgage will be paid off by the insurance company. In fact, it is really just a kind of life insurance, but the benefit is limited to the amount of your mortgage.

Since your mortgage is a declining balance and you pay a flat monthly fee based on the original amount, it can be very overpriced insurance. Also, it doesn't address any of your family's other financial needs in case of a death. So, you could end up needing both life insurance and mortgage protection insurance.

In most cases, you would be better off buying term life insurance for each spouse that covers the amount of the mortgage and whatever additional financial requirements that you have. As the mortgage balance declines, you can reduce your term life coverage and potentially save money. If only one spouse works, you may even find that it is sufficient to insure only the primary breadwinner with one policy that will address the family's total needs.


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