What is Mortgage protection?
Mortgage protection insurance, often referred to as mortgage life insurance, is a type of life insurance designed specifically to cover your mortgage if you pass away during the term of the loan. It ensures that your family or beneficiaries won’t be burdened with the mortgage payments if you’re no longer around.
Here’s how it works:
1. Coverage Amount: The coverage amount is usually equal to the outstanding balance on your mortgage. As you pay down your mortgage, the coverage amount typically decreases over time.
2. Beneficiary: Unlike traditional life insurance, where the beneficiary is usually a family member or loved one, the beneficiary of mortgage protection insurance is usually the mortgage lender. If you pass away, the policy pays off the remaining balance of your mortgage directly to the lender.
3. Term: The term of the insurance policy often matches the term of your mortgage (e.g., 15, 20, or 30 years). Once the mortgage is paid off, the insurance typically ends.
4. Cost: Premiums for mortgage protection insurance can vary based on factors like your age, health, and the amount of the mortgage. Some policies have fixed premiums, while others might change over time.
5. Additional Coverage: Some mortgage protection policies also offer additional features, like disability coverage, which can help with mortgage payments if you become disabled and are unable to work.
While mortgage protection insurance can provide peace of mind, it’s essential to compare it with other life insurance options. Traditional term life insurance, for example, might offer more flexibility, allowing your beneficiaries to use the payout for various needs, not just the mortgage.