Sometimes, you just have to ask the hard questions to yourself and then figure out how you can protect yourself, your family and your home. For instance, what would happen if the primary breadwinner in your family became disabled, came down with a serious illness or died? Could you still make the monthly mortgage payment? Do you have a financial back-up plan?
Don’t feel alone. Many people don’t have a plan or an insurance that could help them out in these situations. In the past, life insurance was the choice to help a family out in case mom or dad died.
But according to LIMRA’s Life Insurance Barometer Study in 2013, 85 percent of consumers agree that most people need life insurance, yet just only 62 percent say they have it. LIMRA is a worldwide association of insurance and financial services companies.
There is also a less-heard of option in insurance called Mortgage Payment Protection Insurance (MPPI) or Mortgage Protection Insurance (MPI). Many people confuse that with Private Mortgage Insurance (PMI). They are totally different things.
PMI is charged to you each month along with your mortgage payment to protect your lender in case you default on the loan. It is charged to those who do not put down 20 percent down.
MPPI and MPI can be described as a life insurance equal to the amount of your mortgage, says Etti Baranoff, associate professor of insurance and finance at Virginia Commonwealth University, Richmond. There are many riders and options that can be added to the insurance. But its purpose is to help a family stay in their home and have the mortgage paid if there is a terminal or long-term illness, a layoff from a job, disability or death.
“The insurance industry needs to give people a peace of mind. And sometimes, when that fear of ‘what would you do if something happens to you’ is put right in front of your face, you don’t look at the big picture,” she says. “People start buying insurance over their cell phone without really knowing what they are buying or what it really covers.”
Baranoff just warns people to really take a hard look at the fine print of any insurance they buy, including mortgage protection insurance.
“For instance, maybe you need to compare and look into disability insurance instead. It not only pays for your mortgage, but you also get money to help feed your family and other bills,” she says. “Your mortgage is most likely only 20 percent of your salary. But the other bills add up. And how will you feed your family if you are disabled?”
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Paivi Kaufman, president of Mortgage Protection & Insurance Services Inc. in Fort Lauderdale, Fla., has seen way too many homeowners who have a mortgage but no protection at all.
“I just met a woman a few weeks ago. Her mom died. The family didn’t have enough money to even pay for the funeral. They had to borrow money for that. The dad could no longer live in the house because no one could come up with enough money for the mortgage to keep him there,” she says.
There are a lot of sad stories. But Kaufman has been in the insurance business a long time and has seen how being prepared can truly give families a second chance. Mortgage payment protection insurance is one of those second chances, she says.
One of the advantages of this type of insurance is that many of the plans do not need to get medical underwritten. “Many of the companies we work with have mortgage protection insurance up to $400,000 without physical exams,” she says. “It makes it easier and faster to qualify. “
That’s good news to those who can’t get other life or disability insurance because of health issues or because of high risk jobs.
“One of the great things about this insurance is the money back option on some of the plans from some of the companies. You get your premium returned to you in full at the end of the policy,” she Kaufman says.
She explained what this could mean for someone financially. For instance, if someone pays $100 a month for mortgage protection insurance when they took out the 30-year loan, they would get every penny back at the end of the three decades. They would receive a check for $36,000 tax-free.
“The premium price depends on a lot of factors such as how much the mortgage is and the age of the person getting the policy,” she says. “One plan doesn’t fit all.”
For instance, the price of the insurance can be tripled if someone is in their 60s compared to someone in their 20s. A smoker is usually charged twice the amount of a non-smoker.
“No one knows when they will die, or we all die one day. We also don’t know when a heart attack, stroke or terminal illness will happen,” Kaufman says. “The only thing you can plan for is to have some type of financial protection for you and your family.”
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