Is mortgage protection insurance the same as life insurance?
If you’ve recently purchased a home, moved in or refinanced, you’ve probably gotten a flood of letters that come in asking about mortgage protection options. It’s not spam, it’s real stuff, although it might feel like spam. But I just wanted to go over really briefly because many people are confused about the difference between mortgage protection and life insurance.
I talk to some people, interestingly, who will say, “No, I’m not interested in mortgage protection, but I would like some life insurance.” Or vice versa. But what people don’t understand is it’s all life insurance. It’s all under the life insurance umbrella.
Where did the idea of mortgage protection insurance come from?
Years ago, before the mortgage meltdown, mortgage companies used to offer life insurance policies. These would pay off the mortgage if you died…but only if you died of an accident. Some of them were decreasing term policies that follow the trajectory of the mortgage. Others were flat. And some paid out to the mortgage company directly. But they’re all life insurance products from life insurance companies. Typically, the mortgage company would partner up with a life insurance company because mortgage companies don’t offer life insurance.
What happened is the name stuck. And over the years, people now think that mortgage protection is its own insurance life insurance product. Mortgage protection is simply a concept where we’re using life insurance and special benefits of a life insurance policy to protect your mortgage.
Questions to ask yourself
How can you know how much and what type to get? What is the amount of a mortgage you’d like to have paid off? That can be the size of the death benefit of your life insurance policy. Are we using whole life to protect your mortgage or are we using term? How long would you like to stay in the home after the breadwinner passes away? Or would you like the entire mortgage paid off? All those are different factors that can be weighed in depending on your circumstances and what your needs are.
If you were to call and chat with somebody about mortgage protection insurance, that agent is an advisor whose job it is to find out what would make the most sense.
Now, often what we’re trying to do in mortgage protection is get you something called living benefits, because that’s the biggest reason why people lose their home to foreclosure or to bankruptcy is because they get sick, they get a chronic or critical or terminal illness diagnosis. Nobody dies. Regular life insurance does not pay out because there’s no death certificate.
The other thing we try to do when we write a mortgage protection policy is to avoid having bloodwork done. First, most people don’t like the idea of being poked by a needle. But keeping the application non-medical is a less risky route go to.
What is mortgage protection insurance?
So mortgage protection insurance, again, simply a concept in life insurance designed to protect the mortgage and keep the family in the home, whatever life throws at you, whether it’s death, disability, illness of some kind. But again, make no mistake, it’s all different types of products under the life insurance umbrella.
Hopefully that clears it up. I get a lot of questions on this topic. There’s a lot of confusion about what mortgage protection is compared to regular life insurance. You really just need to talk to an advisor, a professional that knows what they’re doing. A good advisor can recommend what would be best for you.
If you need more clarity or would like to explore protecting your mortgage, feel free to schedule a quick chat. I’ll be happy to explore this more with you or answer any other questions you have.