Mortgage Protection Insurance: Do You Need It
Mortgage protection insurance can help your family pay off the mortgage if you become disabled or die. But it’s less flexible than a regular life insurance policy.
Edited byChris JenningsUpdated November 9, 2021
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Signing onto a 30-year home loan is a major financial commitment for many homeowners. If you or your spouse dies or becomes disabled, your family could fall behind on payments and eventually be forced into foreclosure.
But there are safeguards you can put into place. One option is mortgage protection insurance , which pays off the mortgage under certain circumstances.
While this type of insurance can provide a safety net for your family, you should weigh the pros and cons carefully before signing up for a policy.
Heres what you need to know about mortgage protection insurance:
What Is Mortgage Disability Insurance
Mortgage Disability Insurance covers your ongoing mortgage payments for a specified period of time should you become disabled due to illness or injury that prevents you from performing the regular duties of your occupation prior to your disabilitys manifestation. It is typically purchased with Mortgage Life Insurance.
How does Mortgage Disability Insurance Work?
Heres an example of how Mortgage Disability Insurance works:
When Patricia arranged a mortgage to finance the purchase of her new home, she was worried about how she would be able to make the monthly mortgage payments and keep her house if she became temporarily disabled due to an injury that prevented her from working.
She was concerned because she had little savings left after making her down payment on the home, and did not have any type of disability insurance in place already.
So when Patricia learned that she could secure Mortgage Disability Insurance at economical group rates from the financial institution that provided her mortgage, she decided to do so.
Several years later, Patricia was seriously injured in a car accident and could not work for nine months. However, after a short waiting period, Patricias Mortgage Disability Insurance kicked in and began making her $2,500 monthly mortgage payments. As result, Patricia was able to remain in her home without making mortgage payments until she fully recovered from her injuries and was able to return to work.
What does Mortgage Disability Insurance cost?
Am I Eligible To Apply For Disability Insurance Plus For Cibc Mortgages
To be eligible to apply for Disability Insurance Plus on your CIBC mortgage loan, you must be:
- approved for the mortgage
- 18 to 64 years old
- a borrower, co-borrower or guarantor on the mortgage and
- gainfully employed as a permanent employee, and working at least 25 hours per week.
Also, you must not be:
- receiving disability benefits from any source
- a seasonal worker or
- self-employed, an independent contractor, a controlling shareholder of the company that employs you, or employed by a member of your immediate family or a company either owned or controlled by an immediate family member.
A person who:
- has lived in Canada for a total of 183 days or more during the 365 days prior to the date of your insurance application or
- is a member of the Canadian Forces.
Note: There are additional eligibility requirements that must be met at the time of submitting your claim for it to be approved. For more details, review the frequently asked questions and the Certificate of Insurance located under Important documents and information.
You can make a claim using the claim form below or by calling the CIBC Creditor Insurance Helpline at . We recommend that you make a claim as soon as possible following an insured event.
Notice and proof of claim must be made to Canada Life within 120 days from the date of disability or job loss, otherwise the claim will not be payable. Please refer to the claim form below for further details:
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Find Cheap Life Insurance Quotes In Your Area
That’s why credit life insurance is typically a poor choice unless you have a pre-existing medical condition that would preclude you from purchasing term life insurance instead.
Read on to learn more about this form of coverage.
- pays off a debt if you pass away.
- covers loan payments if you become disabled and you’re unable to work. May be limited to a certain number of payments or total amount paid.
- covers loan payments if you are laid off from your job. May be limited to a certain number of payments or total amount paid.
- covers property used to secure a loan, such as a boat or car. Coverage is only applicable if property is damaged or destroyed during the period of the loan.
These might be offered as a single policy, in which only you are covered, or a joint policy that covers you and a spouse. While joint insurance is more expensive, there’s a discount when two people are on the same policy.
What To Consider When Buying Disability Insurance
If you’re considering disability insurance, make sure you:
- check with your employer to see if you already have group disability coverage with your employer’s plan
- shop around, especially if you’re considering private disability insurance
Consider group insurance offered through a union, guild, or professional or alumni association. Premiums for this type of coverage usually increase as you get older. You’ll need to renew your insurance every few years.
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What Does Mortgage Disability Insurance Cost
Disability insurance companies use your mortgage amount, health, age and occupation to determine your mortgage disability insurance premiums.
Like most insurance products, the cost for each person will vary depending on a variety of factors. Most of the time, mortgage disability coverage is often less expensive than traditional disability insurance, but only because the benefits are extremely limited, Martin says. Assuming you are in good health and comparing similar benefit amounts and lengths, you will pay more for a mortgage disability insurance policy than other disability insurance products.
One way to offset costs is to shop around and weigh all your options, Martin adds.
Martin suggests paying attention to the benefit and elimination periods when shopping for a policy. The average benefit period for long-term disability is 34.6 months, so making sure that your mortgage disability policy lasts at least that long is important, he says.
Life Insurance Vs Mortgage Protection: Key Similarities And Differences
Most MPI policies work the same way as traditional life insurance policies. Every month, you pay the insurer a monthly premium. This premium keeps your coverage current and ensures your protection. If you die during the term of the policy, your policy provider pays out a death benefit that covers a set number of mortgage payments. The limitations of your policy and the number of monthly payments your policy will cover come with the policys terms. Many policies agree to cover the remaining term of the mortgage, but this can vary by insurer. Like any other type of insurance, you can shop around for policies and compare lenders before you buy a plan.
However, MPI differs from traditional life insurance in a few important ways.
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When Is Insurance For Mortgage Protection A Good Idea
If you owe on a home mortgage, life insurance coverage is typically a good idea. This is especially true if you have a spouse who would be financially impacted by your death and/or minor children to consider.
Even if you dont have children or a partner, affordable term life insurance can help protect your loved ones in the event of your passing, leaving them with enough funds to pay off your home or just covering the expenses that would be involved with listing and selling the property in your absence.
Do You Pay Taxes On Disability Insurance
The federal tax rules for private disability insurance payments depend on who paid the premiums and how they were paid. Generally, if your employer paid the premiums, then the disability income is taxable to you. Post-tax deductions are taken out after your income and payroll taxes have been withheld.
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How Much Pmi Costs
The cost of PMI varies but is usually around one-half of 1% of the loan amount. So, it’s well worth the effort to get rid of it as soon as you can, if you can. Also, keep in mind that mistakes often happen, and the servicer might not remember to cancel PMI once your loan balance gets to 78% without you reminding them.
Should I Purchase Mpi
Again, unlike PMI, this type of insurance is purely voluntary. If you’re in good health, relatively secure in your job, have no unusual lifestyle risks, and are adequately otherwise insuredfor example, you have life insuranceyou might not want or need to purchase this type of insurance.
But if you think that your particular circumstances or risk factors could warrant getting this type of insurance, consider contacting an insurance agent.
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How Much Disability Insurance Should I Have
Your disability benefit should be about 60% of your gross pay, which usually equals your take-home paycheck. For that level of coverage, you can expect to pay between 1% and 3% of your annual salary in premiums, though the actual amount will vary based on how much coverage you buy.
Acceptance Rates And Insurance Premiums
Secondly, MPI policies have guaranteed acceptance. When you buy a term life insurance policy, the cost you pay each month depends on factors like your health and occupation. You get to skip the underwriting process with an MPI policy, as most policies typically don’t require policyholders to submit a medical exam. This can be very beneficial if youre sick or work in a dangerous or high-risk job. However, it also means that the average MPI premium is higher than a life insurance policy for the same balance. For adults in good health who work in low-risk jobs, this can mean paying more money for less coverage.
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Closed Community And Governmental Self
Some communities prefer to create virtual insurance among themselves by other means than contractual risk transfer, which assigns explicit numerical values to risk. A number of religious groups, including the Amish and some Muslim groups, depend on support provided by their communities when disasters strike. The risk presented by any given person is assumed collectively by the community who all bear the cost of rebuilding lost property and supporting people whose needs are suddenly greater after a loss of some kind. In supportive communities where others can be trusted to follow community leaders, this tacit form of insurance can work. In this manner the community can even out the extreme differences in insurability that exist among its members. Some further justification is also provided by invoking the moral hazard of explicit insurance contracts.
In the United Kingdom, The Crown did not insure property such as government buildings. If a government building was damaged, the cost of repair would be met from public funds because, in the long run, this was cheaper than paying insurance premiums. Since many UK government buildings have been sold to property companies and rented back, this arrangement is now less common.
Insurance companies may sell any combination of insurance types, but are often classified into three groups:
General insurance companies can be further divided into these sub categories.
- Standard lines
- Excess lines
How We Can Help
A BMO mortgage professional can tell you more about Mortgage Disability Insurance and help you apply. Just use our Real-Time Online Appointment Booking Tool to book a time to speak with a in-branch or .
* Some limitations and exclusions do apply. For more information ask for a copy of the Insurance Certificate. Mortgage Disability Insurance is provided and governed by Sun Life Assurance Company of Canada.
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Financial Stability And Rating
The financial stability and strength of an insurance company should be a major consideration when buying an insurance contract. An insurance premium paid currently provides coverage for losses that might arise many years in the future. For that reason, the viability of the insurance carrier is very important. In recent years, a number of insurance companies have become insolvent, leaving their policyholders with no coverage . A number of independent rating agencies provide information and rate the financial viability of insurance companies.
Insurance companies are rated by various agencies such as A. M. Best. The ratings include the company’s financial strength, which measures its ability to pay claims. It also rates financial instruments issued by the insurance company, such as bonds, notes, and securitization products.
Who Should Get Mortgage Disability Insurance
Anyone with a mortgage may be interested in getting a policy, but ideal candidates for mortgage disability insurance are:
- People in a high-risk occupation
- People who dont have existing disability coverage through work
- People who cant get traditional long-term disability coverage
Since most of these policies are simplified or even guaranteed issue, people with health conditions can benefit from them, as well. If you work in a hard-to-insure occupation, such as restaurant service, then mortgage disability insurance may be your only option to protect yourself and your home, Anthony adds.
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Differences Between Mpi Pmi And Mip
Mortgage protection insurance can easily be confused with another abbreviation, PMI, or private mortgage insurance. While the letters and terms for these insurance products are almost identical, they are distinctly different. As described above, MPI protects you PMI protects the lender that loaned you your mortgage, and is required on conventional loans when the borrower puts less than 20 percent down.
To make all of this even more confusing, there is yet another acronym, MIP, which stands for mortgage insurance premium and applies to FHA loans. Like PMI, MIP protects the lender, not the borrower. However, unlike PMI, MIP cannot be removed on an FHA loan unless the borrower made a down payment of at least 10 percent.
What Is The Main Purpose Of Disability Insurance
As its name suggests, disability insurance is a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability. In the United States, individuals can obtain disability insurance from the government through the Social Security System.
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What Are The Expected Costs Of Insurance For Mortgage Protection
There are many factors that go into the cost of life insurance coverage, even if youre buying it to protect your home mortgage. These include the level of coverage , your age, your health, your location, and things like tobacco use or hobbies.
We found that for between $300,000 and $500,000 in term coverage for 30 years, a healthy woman in her early-30s could expect to pay somewhere between $16 and $35 a month.
How We Chose The Best Insurance Companies For Mortgage Protection
In building this list of mortgage protection insurance options, we looked at 13 of the best term life insurance companies. Like your mortgage, term policies last for a specific period of time and are a more affordable option than permanent policies, so term is our suggested coverage option for mortgage peace of mind.
To choose our top picks, we considered factors such as availability, product features, and both included and optional benefits. We compared pricing, as well as evaluated consumer satisfaction and third-party industry ratings to determine which carriers can offer you the most trusted, affordable, and feature-rich coverage available.
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Premium Calculation For The Insurance
The premium amount that you will pay depends on certain factors that the financial institution considers. They include age, occupation, health, and mortgage amount. For instance, if you work in a hazardous environment like construction, you will pay higher premiums as compared to if you are in an office. The money goes to your lender thus, you will not see the coverage. The premium payments can be monthly or once or twice annually.
Is Mortgage Protection Insurance Right For You
Because mortgage protection insurance policies decrease in value over time and can be hard to get later in life, theyre generally best for homebuyers who:
- Are young and might have trouble securing term life insurance
- Work in high-risk jobs
- Have existing health conditions
If your family would use the payout for more than just the mortgage such as monthly bills, funeral costs, and college tuition then a regular life insurance policy might be a better fit.
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Other Types Of Disability Insurance
Long-term disability insurance: Covers up to 60% of your pre-tax monthly salary if youâre unable to work for a long period of time due to illness or injury. LTDI policies typically pay to retirement age, but also offer benefit periods of two, five, or 10 years.
Short-term disability insurance:STDI is essentially a complement to LTDI. It covers your income if youâre unable to work for short period of time due to illness or injury. STDI usually lasts for three to six months and covers about 60% of your gross income.
Supplemental disability insurance:SDI is meant to supplement an employer-sponsored disability insurance plan. Group disability benefits are often taxed, so policies rarely offer enough coverage.
Some people even purchase disability insurance and life insurance together, so if they become disabled, they can continue paying their life insurance premiums.
Not sure how much disability insurance coverage you need? A Policygenius agent can help you choose the best policy for your situation.