By: Mevish JafferPurchasing a home is one of the biggest and most important investments people can make in life. In addition to investing financially, individuals also make a personal investment when they choose to buy a home. This is because a home acts as much more than just a roof over your head, it's also a safe haven where family, friends and loved ones alike gather to seek refuge and solace from the outside world. Therefore, it's extremely important for home owners to protect their investment by considering different types of mortgage protection plans. The specific purpose of mortgage protection insurance is to provide lenders and home owners with a guarantee that the mortgage will be paid off in the event of default, death or disability.
Because insurance companies sell different types of mortgage protection plans, it's important for home owners to understand the necessity of each one. This allows individuals to determine their own need to purchase mortgage protection insurance. The following are a few examples of some common mortgage protection plans that many home owners consider purchasing for the purpose of protecting their investment:
1. PMI
The purchase of Private Mortgage Insurance or PMI is usually required for borrowers when they buy a home without putting a 20% down payment. The main purpose of PMI is to protect lenders in the event mortgage holders default on the loan. The cost for private mortgage insurance usually varies with different lenders and is dependent on the following factors:
- Loan type
- Loan term
- Total value of the home
- Coverage amount
2. Mortgage life insurance
Even though it's not something many people would prefer to contemplate, having a good mortgage life insurance policy is necessary in order to protect one's home in the event of their untimely death. In the midst of experiencing grief and loss, the last thing anyone wants is their family to also feel worried about how they will hang on to their home. However, with mortgage life insurance, home owners do not have to worry about their loved ones being stranded if they pass away, as the remaining mortgage balance is paid off in full by the insurance company. The type of mortgage life insurance policy home owners require is based on certain conditions, including the kind of mortgage they have. For example, a decreasing term insurance policy is often the best option for those with a repayment mortgage, while level term mortgage life insurance is typically beneficial for home owners with interest only mortgages. There are also additional benefits and coverage options to consider with these types of mortgage protection plans. They include terminal illness benefits, which are usually included with both decreasing and level term insurance, and critical illness coverage, which is another type of mortgage life insurance policy that home owners can choose to add on to their existing plan.
3. Mortgage disability insurance
This type of mortgage protection insurance provides home owners with coverage if they are unable to make their mortgage payments due to loss of income as a result of disability. The mortgage disability insurance policy usually pays a benefit to the home owner up to the benefit term. The duration to purchase coverage for in the event of disability is entirely up to the policy holder.
Although some may argue that the purchase of mortgage protection insurance is unnecessary due to the existing financial stresses related to buying a home, most would agree that protecting your investment is an absolute must! Mortgage protection plans offer individuals the security and peace of mind that is conducive with homeownership.
