Below are some of the common question and answers I have come across over the years on mortgage insurance and what it does. Hope this helps you in your decision process.
Q. What is mortgage insurance protection?
A. In a nutshell, it is life insurance product that is designed to pay either all or a part of the mortgage balance remaining. These insurance products in many cases offer additional riders at no expense for most of them, where up to 90% of the life insurance benefit can be paid in advance in the event certain critical illnesses such as heart attacks, stroke and cancer events strike you.
There are riders that also will pay out the benefits in the event you can’t perform 2 of the 6 activities of daily living which are: eating, bathing, getting dressed, toileting, transferring, and continence. This is the same definition for Medicaid and Long Term Care insurance policies. You derive similar benefits without the added cost of a separate Long Term Care insurance policy.
Some coverages add benefits for disability income in the event you have lost your ability to earn a wage.
To sum it up, there are plans that are there to provide you and your family funding so that you maintain your ability to make your payments on time or simply pay off the mortgage.
Q. Is this the same as PMI (Private Mortgage Insurance)
A. No. PMI protects lenders, not you. If you put down less than 20% on your home, you pay monthly premiums to a PMI policy that will pay your lender should you default on your loan. However, in the event of your death, your heirs must continue making mortgage payments, and PMI only kicks in if family members default.
Q. Who are the benefits paid to? I heard they are paid to the lenders.
A. All plans that are offered through us have the benefits paid directly to you, the homeowners.
Q. How much are these plans?
A. That depends on the amount of the mortgage, your age, sex, the plan type, your past and current health history. Price ranges vary which is why it is important that you do good case design and making companies compete for you business at the beginning helps keep your cost down. The goal in some cases may not be to pay off the balance of a mortgage. Multiple case designs and pricing are normally the best way to help you narrow down what is acceptable to you.
Q. I already have life insurance. Can I just use that?
A. Possibly. If your coverage was designed to do something else such as pay off school expenses or provide funding for a child to college or that the coverage is on to short of a term period like we see in many cases, it may not be a good fit. If your current life insurance plan doesn’t provide funding for disabilities and/or critical or chronic illnesses, it may not be a good fit.
An assessment of the current coverage and pricing may be your best bet to see if there are reasons to augment, supplement or possibly replace what you have in order to give you the benefits and pricing you desire for the mortgage protection.
Q. I have severe health problems. Can I get coverage?
A. Yes. Companies are allowed by law in the state of Washington to offer guaranteed issue plans. But to be clear, we may not be talking about paying off a mortgage. In certain circumstances, trying to pay off a mortgage will be cost prohibitive. Because of that, critical payment periods plans allow your spouse to keep current on mortgage payments and buy time to arrange the sale/disposition of your home and estate.
Q. I am the only person named on the mortgage. Does my spouse need to get the mortgage protection?
A. If you qualified to buy them home strictly on your income, then the need to have mortgage protection may not be necessary. The question becomes, will the loss of your spouse affect your financial ability to pay not just the mortgage, but the entire household expense. If the spouse has no coverage at all, it would be recommended that the spouse have a minimum of coverage to handle final expenses to avoid taking money out of retirement and savings accounts.
Q. Can the monthly cost of my mortgage protection change or go up in the future?
A. Generally the answer is no. But if you are electing a term period that is less than the mortgage period, the monthly cost could go up.
Q. If I sell my house, am I obligated to keep the coverage?
A. No. But if you are relocating and buying another home, the coverage you have would simply just go with you.
Q. If I pay for so many years and cancel my coverage, will I get any of my money back?
A. It depends on the type of plan you elect. Some plans will accrue some cash value that would come to you upon termination. Other plans will return the entire expense of your plan over time. Comparing such plans would be to your benefit in order to make an informed decision.
Q. Do I have to medically qualify to get the coverage?
A. In most cases no if you don’t want to go through the exam process. The industry has been able to develop coverage plans that can be offered without a medical exam or lab testing. Pricing of these types of plans do differ as compared to plans that do require more data on your health. In some cases, it may make sense to take plans that are limited in their questioning about your health.