Mortgage Protection Life & Disability Insurance “Q&A”
Q. What is Mortgage Protection Life & Disability
Insurance?
Mortgage
Protection Life & Disability Insurance is a life
insurance program designed to pay off a mortgage in the
event of the premature death of the borrower or
co-borrower. These programs are considered to be
supplemental in nature as they are not intended to be
the sole, stand-alone program to meet an individual’s
life insurance or disability insurance needs. These
programs are designed to pay off the balance of an
individual’s mortgage and are typically not
“overwritten” to provide funds at death over and above
the balance of the mortgage to provide for such expenses
as funeral & burial costs, average annual living expense
costs for the surviving family, etc. These expenses
should be provided for through one’s individual life
insurance program where an individual’s annual income is
used to establish the death benefit. It is extremely
common for an individual to have a policy in force
geared towards paying off their mortgage and an
additional policy in force designed to provide for their
family’s annual living expenses for a set period of time
after their death. Should an individual apply for the
optional disability insurance rider available through
many Mortgage Life & Disability Insurance programs
today, the same guidelines apply as it pertains to the
monthly benefit amount provided by the rider. The
monthly benefit provided by the optional disability
rider is designed to pay an individual’s monthly
mortgage payment including taxes and insurance for a
period of up to 2 full years. The benefit amount
provided by the rider is not intended to replace an
individual’s monthly income from employment up to their
maximum percentage.
Q. Does the amount of
the death benefit provided through a Mortgage Protection
Life & Disability Insurance program decrease annually
along with the mortgage balance?
In the past, a
decreasing death benefit was a fairly common feature
associated with a Mortgage Life Insurance program. In
fact, many of the key insurance carriers in the Mortgage
Protection market still offer the option of having a
decreasing death benefit. However, these days just about
everyone who purchases a Mortgage Life program purchases
a program with a level death benefit. The reason is that
Mortgage Life Insurance programs are most commonly term
life insurance products. With modern advancements in
medicine, early detection of potential health risks,
etc. people are living longer today on average than say
10 years ago. The trend for term life insurance products
lately has been that rates are continually dropping. The
most competitive rates for coverage today are available
on level death benefit, term life insurance products and
most of the insurance carriers have structured their
Mortgage Life Insurance programs based on a level death
benefit platform to be able to offer a more competitive
Mortgage Protection program. When you compare rates
these days you’ll find that you can buy a program with a
level death benefit for the same price, and in many
cases depending on the carrier, for less money than you
can buy a program with a decreasing death benefit. Why
buy a decreasing death benefit when you can have a level
death benefit for the same money or less?
Q. Who is the
beneficiary of the benefits provided by a Mortgage Life
& Disability Insurance program?
Your family! Some
people are under the impression that the lender is
usually named as the beneficiary of these programs. Not
true! These are individual programs taken out on you
and/or your co-borrower. You will name a beneficiary
that will apply these funds at their discretion or
according to the terms of a will and so on. The main
idea behind these programs is that the death benefit be
applied to pay off the remaining balance of the
mortgage. However, the decision to do so will be solely
up to you or your named beneficiary usually one’s
co-borrower, spouse or adult children. As is common with
any life insurance death benefit, the death benefit
provided through a Mortgage Life & Disability Insurance
program is tax-free.
Q. Is the Mortgage Life &
Disability Insurance Program tied to my current home or
is it portable?
The program is on
you, goes with you and can be used to pay off any
mortgage that you have in place at the time of death.
Many people will make *adjustments to their existing
Mortgage Protection program when they move from the home
that the benefits of the program were based upon to a
new home especially if the amount of the mortgage on the
new property is greater than the previous mortgage
balance.
Q. How does the
optional disability insurance rider work?
The optional
disability rider available on many Mortgage Life &
Disability Insurance programs is one of the most popular
combination programs written. Many people really like
this combination program because it provides a very
comprehensive coverage package that covers an individual
not only in the case of their premature death but also
provides a monthly disability benefit in the event that
they become sick or injured and are not able to work.
The rider is written for the amount of the total house
payment including taxes and insurance and pays up to 2
full years after satisfying a very standard 90 day
elimination period. Many are aware that your chances of
becoming disabled are just as high if not higher than
dying prematurely. For many, having the optional
disability protection rider can mean the difference
between being able to remain in the home in the event of
disability or not. This combination program costs a
little bit more money each month than just the premium
for the basic death benefit, but it is still extremely
affordable. If you’ve ever shopped for individual
disability insurance, you’ll find that you can buy a
Mortgage Protection Life & Disability Insurance
“combination” program for the same money or less than
the disability insurance alone. That’s why 99.9% of
those buyers seeking primarily disability protection
will purchase that coverage through a combination
program. Beyond just the cost, many people will purchase
disability protection to pay their house payment through
a combination life & disability insurance program
because they are a lot easier to qualify for than an
individual disability insurance program. The disability
protection rider available through a Mortgage Protection
Life & Disability Insurance program is not underwritten
anywhere near as strictly as individual disability
products and applicants are not required to prove their
income by providing 2 years W-2’s or 1099’s.
Q. What is Return of
Premium?
The Return of
Premium rider is an excellent way to do a number of
different things as it applies to Mortgage Protection.
First and foremost, Return of Premium is exactly what it
sounds like. It’s an optional rider that will refund
every dollar paid in to the program over the life of the
policy if you do not use the coverage (i.e. die or
become permanently disabled). It is a dollar for dollar
return of premiums paid at the end of the coverage
period and your return of premium payment is tax-free.
There is no gain on the money during the contract period
therefore the return of premium is not taxable when it
comes back to you. Many people really like this rider
because it is a way to get the insurance protection that
you need to pay off your mortgage and if you don’t die
or become disabled, which is hopefully the case, it’s as
if you were putting away a set amount of money every
month that you get back at the end of your coverage
period. Many people like to think of it as an
alternative savings program. Lots of people aren’t great
savers today, so this is an excellent way to do it. In
addition because the optional return of premium is
nothing more than a large, lump-sum return of your
money, many people will use their return of premium
payment to accelerate their mortgage by applying the
money towards any balance still owed on the original
mortgage, a second mortgage or an equity line of credit.
Still others will use it as a lump sum payment for a
new, possibly paid up, personal life insurance policy
after the coverage that they had for their mortgage
terminates. There are several possible uses as you can
probably imagine, so be sure to ask your The Quote
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