How to Insure Your Mortgage

When you bought your property, you had to have a decent income and credit rating. You may be confident that even if you lose your job, you'll find another one. If you die, however, your income is forever lost, which could leave your family struggling to meet the monthly mortgage obligation. Mortgage protection insurance pays the mortgage off in the event of your death. Typically, you must purchase the protection within a certain time frame after closing.

Step 1

Budget to include the insurance premium in your monthly payment. The premium is based on the policy amount and other factors such as whether you smoke. The premium will remain the same for the life of the mortgage. Historically, in the event of your death, the policy paid the amount you still owed on the mortgage. Many companies; however, have moved to a full-payment policy. If your original policy is for a $200,000 mortgage, that will be the policy payout whether you die the day after you get the policy or years later, when you only owe a few thousand more on the house.

Step 2

Ask questions; all insurance is not created equally. For example, in the event of your death will the policy pay only what is still owed on the mortgage, or will it pay out the original amount? Find out the average time from death to payout. If you die, you don't want your spouse haggling with the insurance company to pay the policy while falling behind on the mortgage payments. Your lender offers mortgage insurance, but so do other companies; take the time to find policy that is the best fit for your needs.

Step 3

Price joint policies. There are mortgage protection policies that will pay out in the event either you or your partner die. If either of you has medical issues, a joint pay policy can be easier to obtain than two separate life insurance policies, which would require a more extensive medical examination.

Step 4

Choose a company and policy. Fill out the application and wait for approval.

Step 5

Maintain the premiums on the policy so it will stay in effect throughout the life of the mortgage.

Tips

  • Some companies allow you to convert the policy to a straight life insurance policy if you pay the mortgage off early.
  • The primary difference between mortgage protection insurance and regular term life insurance is the underwriting. Mortgage protection insurance does not generally require a close look at your medical health; according to certified financial planner Jeff Rose, mortgage protection maybe the preferred choice if you have a pre-existing medical condition. Convenience is also a factor. Applying for mortgage protection insurance is usually easier and faster than applying for regular term life insurance.

Warning

  • Most mortgage insurance policies only pay out if you die. Consider adding a disability policy so if you become disabled, your mortgage payments will also be covered.

About the Author

Candace Webb has been writing professionally since 1989. She has worked as a full-time journalist as well as contributed to metropolitan newspapers including the "Tennessean." She has also worked on staff as an associate editor at the "Nashville Parent" magazine. Webb holds a Bachelor of Arts in journalism with a minor in business from San Jose State University.