Mortgage Protection Life Insurance: Scam?

Mortgage Protection insurance is aggressively marketed by banks & insurance agents, such as NAANational Agents Alliance — to new & old home owners alike, so if you own a home, or you are about to buy a home, you need to know if this insurance is something you should consider buying.

Buying a home & having a mortgage is a huge financial responsibility. If you are unemployed, or disabled and can’t work, how will you pay your mortgage? Will you lose your home, all your equity in it, and ruin your credit? If you die, how will your family or significant other, pay for the mortgage? Will the people you leave behind become homeless? Mortgage Protection insurance is not a scam, and it can help you, if you become unemployed or disabled, and can help the people you leave behind when you die. But buying Mortgage Protection insurance is not the best decision for everyone, and may not meet your needs as expected.

I’ll explain the pros & cons of Mortgage Protection insurance, and tell you about possible better, less expensive solutions, to help you decide if buying Mortgage Protection insurance is a wise decision for you.

Finding out your insurance, after you are disabled or unemployed,  does not protect you as expected, or you paid too much for the wrong coverage, may leave you with a feeling of being ripped off by your insurance company.

Let’s look at Mortgage Protection Insurance, as we consider what things may cause your mortgage to go unpaid, how this will affect you and your loved ones, and find solutions to make sure your mortgage gets paid, if needed.

1. Unemployment. Will the loss of your job cause your mortgage to go unpaid? Consider the loss of the job of anyone contributing to the payment of your mortgage, such as a spouse.

For most people, the answer to this question is yes. However, if you are near retirement with a large nest egg, or have sufficient investment income, the loss of your job may not mean your mortgage will go unpaid.

A common misconception about Mortgage Protection Insurance is it will pay your mortgage if you are unemployed. THIS IS NOT TRUE. Mortgage Protection insurance often has optional coverage which will waive the premium for a period of time while you are unemployed.

For example, if you become involuntarily unemployed, you may not have to pay the monthly Mortgage Protection insurance premium for the next 6 months, unless you are employed again. Many customers, and some insurance agents, confuse the waiver of the premium while unemployed, for insurance coverage which will pay your mortgage when you are unemployed.

The best thing to do, to prevent the foreclosure of your home due to unemployment, is to build an emergency fund, to pay your monthly living expenses for 12 months or more, to give you enough time to get another job.

2. Disability.  How will the disability of you, or any other income earner in your household, affect your ability to pay your mortgage? As with unemployment, loss of income due to disability will cause most people to be unable to pay their mortgage.

Although Mortgage Protection Insurance may have an option to pay your mortgage for a period of time if you are disabled, it is often very limited. You can be required to be permanently disabled, and some Mortgage Protection insurance policies requires you to be collecting social security disability benefits to qualify.

You could be in a skiing accident, keeping you from being able to work for the next year, but because it is not a permanent disability, you can’t collect on your Mortgage Protection insurance.

If you are permanently disabled, but need to get social security disability to get your Mortgage Protection disability, it could be years before you see any benefits.

In both these situations, you could lose your house to foreclosure long before you get any benefits from your Mortgage Protection disability.

Any insurance agent should tell you a disability rider on Mortgage Protection insurance is not a substitute for a disability insurance policy.

If you choose Mortgage Protection insurance with disability coverage, make sure the coverage will adequately cover you if you are disabled.

3. Death of an income earner. How would the death of any income earner impact the ability to pay your mortgage? Would you still need the mortgage to be paid?

If you live alone, and you don’t care what happens to your home after you die, you don’t need to care about an unpaid mortgage.

However, you may live alone, but you may not want your family or friends to lose out on the equity of your house, or lose the house to foreclosure. You may want insurance coverage to pay off your mortgage, so your family can own it free and clear. Or you may want to have enough insurance to pay the mortgage for several years, to give the people you leave behind enough time to sell it, and get a decent price.

If the death of an income earner would cause someone living in the house, to be unable to cover the mortgage, you NEED insurance coverage, to give the people in your household you leave behind, a way of paying the mortgage — at least for the next few years, so the home can be sold.
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Don’t short change your spouse and family thinking it can’t happen to you. And don’t short change yourself if you think it won’t happen to your spouse.

Dying before your mortgage is paid off is the primary purpose of Mortgage Protection insurance, and it does it very well. You might say to yourself, “Hey, Mortgage Protection life insurance sounds like life insurance?” You’re right! Mortgage Protection Insurance IS life insurance.

Should you buy Mortgage Protection Insurance?

Before considering Mortgage Protection insurance, do you already have an individual life insurance policy? (a life insurance policy you own, not coverage through your work). Paying your mortgage is only one of the expenses the people you leave behind will have to pay.

If you are about to buy a home, or own home with a mortgage, meet with your life insurance agent to see if you have enough life insurance coverage to pay the mortgage, in addition to other expenses.

If you already have enough life insurance, you may not need or want Mortgage Protection insurance.

If you don’t have an individual life insurance policy, consider other types of individual life insurance policies rather than Mortgage Protection insurance.

If you are in good health, and you are okay with having a paramedical exam to take your blood sample, you can pay a lot less, or get a larger dollar amount of coverage, or both, by buying a regular medically underwritten life insurance policy.

Mortgage Protection life insurance is a good choice, even though it costs more than other types of life insurance, for some people.

Consider Mortgage Protection life insurance if:

1, You hate needles and don’t mind paying more to avoid the paramedical exam.

2. You need life insurance, but you have not been to the doctor in years, and you don’t want to risk a medical condition being discovered by the paramedical exam required by other types of life insurance.

You can always buy the Mortgage Protection life insurance to get the life insurance coverage you need, then see if you can qualify for a lower-priced life insurance policy, without worrying about not being able to qualify, or paying more than you would for the Mortgage Protection life insurance.

3. You are over-weight or have health issues. It is easier to qualify for Mortgage Protection life insurance, and as in 2., you can always shop for a less expensive policy once you have life insurance coverage.

4. You want your life insurance coverage approved fast.

How and where to shop for life insurance or Mortgage Protection life insurance?

When you have a mortgage, or any type of loan, your financial institution tries to sell you credit insurance or life insurance, to pay off the loan if you die. This is not usually a good deal, because it is often expensive, and pays the bank directly, rather than a beneficiary of your choice.

Also, there are sales organizations pushing Mortgage Protection insurance on the Web and through direct mail. Life insurance agents pushing only one type of life insurance are not the best to help you decide on the best life insurance product for you.

I prefer independent life insurance agents selling for multiple insurance companies, selling a mix of Mortgage Protection, term life insurance, and permanent life insurance, based on their clients needs.

A good life insurance agent will ask you questions and help you decide on your goals, and then recommend the pros & cons of different options. If an agent is talking to you about only one product, which is the only “best” option for you, it probably isn’t a good option for you.

Don’t meet a life insurance agent in person until you are ready to buy, because a lot of agents will not want to leave without a check and a completed application.

Do you have questions about Mortgage Protection insurance? Tell me about it. Please leave a comment on my facebook page. Or, you can e-mail me at help@smartshopyourcarinsurance.com if you have questions and would like my help. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch.