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Mortgage Protection Insurance Worth the Cost?

hip-5For a lot of homeowners, mortgage protection insurance simply is not worth the extra expense. However, a lot of people are getting sold this kind of protection because of fears of a repeat of the Great Mortgage Meltdown of 2007.

In a nutshell, mortgage protection insurance is supposed to cover the cost of your mortgage payments if you lose your job or cannot work because of disability. It sounds like a great deal with the Foreclosure Crisis.

Why it isn’t always a Great Deal

Mortgage protection insurance is a great deal for the mortgage company but not necessarily the homeowner. There are two big problems with this kind of coverage that those selling it won’t tell you about:

The first is that it will raise the cost of your mortgage. The insurance is added to your mortgage payment but it doesn’t pay off the equity owed on the home. A family with $120,000 in equity on the house would be far better off paying down the mortgage.

Slash Your Home Insurance Premiums. Search for Lower Rates The other problem is that mortgage protection insurance can only be used for one purpose — to pay off the mortgage. It cannot be used to pay for groceries, car payments, utility bills, insurance payments or other expenses.

A lot of people would be better off with a disability insurance policy that provides cash that can be used to pay for any purpose needed. If your household depends on one person’s income, it is a good idea for that person to have enough disability insurance to take the place of his or her salary or income.

When Mortgage Premium Insurance is a Good Idea

However, mortgage premium insurance can be a good idea in some cases. An example of such a case would be a self-employed individual, a salesperson or anybody else who has an erratic source of income. Another example is a person who works in a seasonal or cyclical business such as construction that is subject to frequent layoffs and downturns.

Something to remember is that most people over estimate their ability to earn income. They also underestimate their expenses and overestimate their ability to save money.

If you think your job or source of income is not reliable,  mortgage protection insurance might be in order. Some experts also recommend job loss insurance, which can be hard to get.

Another advantage to mortgage protection insurance is that it may pay off your entire balance if you die or become totally disabled and unable to work. That can enable your family to collect all of your life insurance.

Shop Around for Mortgage Protection Insurance

Here’s something you may not know about mortgage protection insurance. You don’t have to accept the policy the mortgage company offers.  Consumers  can buy their own separate policies, and you can usually buy your own policy even if the mortgage agreement mandates this type of insurance.

Experts recommend that you shop around and contact a number of different insurers or agents because prices vary widely. In many cases the insurance attached to the mortgage can be overpriced.

Persons can often save several hundred dollars by simply going online and shopping for mortgage protection insurance. It isn’t always worth the premium but you can save money on it.