Where did mortgage protection insurance come from?
Let’s talk mortgage protection insurance. There’s quite a bit of confusion around that term in the industry. Let’s first start off with what it is. If you recently refinanced or purchased a home and you move in, you’re going to get a flood of letters in the mail for little postcards. The speak of an urgent matter regarding your mortgage. First of all, it’s not spam. It’s legitimate. It’s even state regulated.
If you don’t want anything to do with them, they’ll go away. But if you respond to one, you’ll get a call from an agent like myself to see if we can help. The goal is to explore your options and possibly get some coverage in place to protect your mortgage in the event of a death or an illness. It is a life insurance product that protects your mortgage or your family and gives you peace of mind and financial stability during a time where it matters most.
What is the history of mortgage protection?
That said, let’s clear up some of the confusion by giving you a little bit of brief history around mortgage protection. Where did mortgage protection insurance come from and what does it mean today? Years ago, before the meltdown, the mortgage companies used to offer coverage at closing. If you purchased a home way back then, you may remember. They offered an option for you to opt into a mortgage protection plan.
You may not realize, the mortgage companies offered it through a life insurance company. Mortgage protection is life insurance, just different types with the goal to serve different purposes.
If it’s offered through the mortgage company, chances are it’s probably an accidental death benefit. The coverage paid out to the mortgage company if you died by an accident. When offered through the mortgage company, most plans were usually not full coverage. If they were full coverage, they likely declined over the time with the value of your home. So as your home went down, so did your coverage.
What has changed today?
Okay, so those are some of the traditional mortgage protection plans from way back. Well, the name kind of stuck, and today things are very different. There are many more options. They are no longer offered through your mortgage company. They normally do not pay out directly to the mortgage company.
Today’s mortgage protection policies are independent policies. They act a lot more like straight, full-coverage life insurance. But where we can, with some extra benefits.
You see, one of the biggest problems that people have that causes them to face foreclosure is an illness like cancer or a heart attack or a stroke. Living benefits are a huge part of mortgage protection today. Today’s policies are independent. That means if you sell your home, refinance, or if you move jobs around, it doesn’t matter. The coverage is in place because it’s independent.
What else has changed?
It doesn’t any longer pay out to the mortgage company. It pays out to your beneficiary so that person can use the money to pay off the home or make payments for a period of time.
There’s a lot of confusion about what mortgage protection is and where mortgage protection insurance came from. I hope this clears it up just by understanding the history of where it came from and how it used to be offered. Keep in mind that around 2008 or 2009, the government made a lot of changes in the mortgage industry. One of them was eliminating their ability to offer mortgage protection at closing. It’s now offered after closing.
Some of those old ideologies and ways of thinking about mortgage protection have stuck. But today, in my opinion, it’s much better than it used to be.
If you do want to look at mortgage protection options for you or your family, don’t hesitate to jump on my calendar and let’s you and I chat and see if there’s something here that makes sense or if I can help.