Mortgage Protection
Insurance policies come in may different shapes and sizes. Mortgage protection policies are no different. With coverage amounts as low as $25,000 and as high as $500,000, it becomes less about the policy itself and more about its purpose. When a trained professional takes a detailed look at your current situation, he or she will be able use these policies to both provide protection and a high level of value.
To understand mortgage protection insurance better let us first look at what it technically is from an industry point of view, then we can determine how it helps many individuals across the nation in different ways. Mortgage protection plans are generally term life insurance policies with a return of premium rider and living benefit riders attached. Now, what does that all mean exactly? Let's break it down.
Term Life Insurance: This is a specific subset of insurance that covers someone for a temporary amount of time. Whether it be five years or thirty years, this policy is not intended to be in place forever. A benefit to this form of life insurance is that it is typically cheaper to get higher amounts of coverage. The downside is that, by itself, it will provide no value to the family unless the insured dies earlier than expected. We say “expected” because the insurance carriers typically provide these policies at lower rates because the chances of death in the given time range are less than the certainty that comes with a permanent policy.
Return of Premium: Above, when we were defining term insurance, we stated that the policy would not provide value to the family unless a claim was made. With mortgage protection, more times than not, there should be cash back option. When a term policy has a cash back option, the company will provide all or most of the money paid toward the policy back to the insured at the end of the term. Yes, you read right. All of the money paid toward the policy is returned at the end of the term. This is important because it allows the insured to see value whether they live or die.
Living Benefits: For a full description of what these benefits are, please go to the final expense page and see the description there. In short, the living benefits for mortgage protection policies are typically better than that of final expense simply because the coverage amounts are higher, so the insured is able to pull more money out if they are diagnosed with a chronic, critical or terminal illness.
Free Customized Quote
Lead Gen Contact Form
Real World Examples
When these three things are put together into one policy, it allows the agent you are meeting with to provide a valuable scenario for the person applying for coverage. Lets look at some of the examples.
Early Mortgage Payoff
Take a couple in their early thirties. They just bought a house with a 30-year conventional mortgage loan and they want to contribute extra to their mortgage payment to pay if off early. They also want to make sure that if anything happens to them over the next thirty years the house will be paid for and their partner will not have to sell the house or work longer hours. The outstanding balance on their mortgage is $175,000, so they each decide to put a policy in place for that amount.
The policy is set up to expire after 25 years, five years before their mortgage is up. They decide to take the extra $183 they were going to put toward the mortgage and use it to fund the policy. After 25 years they exercise the cash back option, providing them with around $50,000 in a lump sum. The remaining mortgage balance is just under $35,000 at year 25, so they decide to pay off the balance and use the rest for a vacation.
Most importantly, if something did happen during those 25 years, the house would have been paid off and the other person would not feel the financial stress on top of the emotional stress of losing a loved one. Even if one of them became sick, the policies money could have been used on hospital bills. Fortunately, in this scenario, they were able to protect themselves from the unpredictable while still meeting the goal of paying their house off early.
Partial Mortgage Payoff With a Refinance
Another couple bought a house around 15 years ago. The two love birds are a bit older than the couple discussed in the last example, approaching age fifty. They are both interested in getting mortgage protection, but do not know how much they can afford or if they will even qualify because of their age and health. Recently, they both went to their doctor and were told they have high blood pressure, as a result, they were both prescribed medication.
After sitting with their agent, they realize they cannot afford to both get coverage for the full amount outstanding on their mortgage. The agent advises them that they could split the coverage amount down the middle because their income is about the same and the rates would be lowered. The couple does not quite see the same value in that scenario. The agent then tells them that if something does happen in the next 15 years, the spouse would refinance the home to get the reduced mortgage payment and the financial burden would be significantly diminished. After 15 years, the spouse would get their cashback check and they would be able to use it to help supplement their retirement income.
Obviously this example is less than ideal, but it is certainly better than the scenario where there was no coverage in place.
Estate Conservation
An older man has been living alone in his house for many years. He has children and is divorced from his wife. The equity in his home is quite substantial. Though he is a bit older in his 60’s now, he still had an interest in mortgage protection, but he didn’t think it was for him. He met with his agent because he was curious to see if it could benefit him. He is healthy, but financially he does not have more to his name than the house, and decides that he can only afford about $50,000 in coverage.
The agent asks if he has existing life insurance, and the man tells him that he has a small whole life policy for about $10,000 to pay for burial costs. The agent informs him that if something does happen, his family would immediately use the $10,000 to cover the funeral, but would be stuck paying the mortgage on the house until they figured out if they could rent it out or sell it. With the additional $50,000, the family would have time to make the best move for the house. If they needed to sell it, they could do so on their time and not at a lowered price so someone could take it off their hands. If they wanted to rent it out, they would have money for repairs, vacancies, and so on. The $50,000 would conserve the equity in the house and take the stress off of his family when making the decision, whatever it may be. The man saw that value, and agreed that mortgage protection could be useful, even for him.
In this example, the situation was fair at best, but with the right agent assisting the client, the power of a mortgage protection policy can be shown.