Mortgage Protection Insurance? What Is That?

There's a new product floating around called mortgage protection insurance. Although any products like this pushed by banks and lending institutions should be taken with a grain of salt, it's always been good practice to take out life insurance equal to the amount of the debt. So what's this product all about, then?

What the mortgage protection insurance does is protect you in case you cannot pay your monthly payments if you lose your job or a an accident which renders you disabled. In case the main borrower dies, the insurance will also pay off the debt.

So, are a few extra dollars every month worth the peace of mind you will get in case something happens to you and you have dependents left behind?

First question you have to ask is, “Is there a return on the policy?” As you continue to pay off your mortgage, the balance will obviously be decreasing. Will your insurance coverage decrease as well and leave you with less to pay every month, too? Will you receive an ROP the minute the mortgage is paid off? Otherwise, it's a great money-making scheme that benefits the insurance companies only.

You could choose to get a cheaper insurance called the “Level Benefit Term.” Simply put, this insurance is only there for the period you have the mortgage. When the mortgage is paid, the insurance is cut. However, you don't get anything in return since you'll only be paying the minimum.

You can opt for a rider that allows you to get back the premiums you've paid after the mortgage is paid off. This results in slightly more expensive payments, though, and you won't earn any interest in this forced savings account.

You must study the numbers well before you decide on any insurance. Like with anything financial, it depends on your need at the time.