Mortgage Protection insurance is a form of insurance specifically designed to cover mortgage repayments if the policyholder becomes unable to make the payments due to any unforeseen circumstances, including sudden injury, illness or death etc.
Mortgage Protection Insurance (MPI) is supposed to protect the beneficiary’s ability to repay the mortgage for its lifetime and is usually bought to cover the cost of mortgage in a situation where the borrower dies. If a policyholder dies and mortgage protection insurance is in force, then the outstanding mortgage payments will be made by the insurer. When a beneficiary dies, the insurance company generally sends a cheque of the amount due on the mortgage directly to the lending company.
Some insurance companies also cover the cost of mortgage during periods of unexpected job loss, but for that the policyholders are required to make a special request to include job-loss rider in the MPI plan. In case of sudden illness and disability or job loss, the insurer also makes direct payments to the lending company through cheques, but only for a specific period (usually 1 to 2 years).
Factors Affecting the Cost of Mortgage Protection Insurance?
There are a few factors that affect the cost of mortgage protection insurance plan, but these factors are completely variable and change considerably from person to person. The primary factor that affects the cost of MPI is the amount of outstanding mortgage payments in question. The higher the amount of repayments a borrower is making, the higher will be the cost of his or her mortgage protection insurance plan. This is the reason why insurance companies usually take on beneficiaries who are making modest mortgage payments.
The age and health condition of the beneficiary also play their role in setting the cost of mortgage protection insurance. In case of job-loss mortgage protection insurance plan, the stability of the employer can have a direct affect on the MPI costs. If the employers is facing financial instability, the beneficiary is considered to be at a higher risk of being unemployed in the near future, and the cost of mortgage insurance plan will be higher for such a beneficiary.
The overall situation of the economy and job market also influences the cost of mortgage insurance policy. Uncertain economic projections may raise the cost of MPI for all the policy holders.
Advantages and Disadvantages of Mortgage Protection Insurance
One positive aspect of this kind of insurance policy is that it is relatively easy to qualify for. This is of particular advantage for the borrowers who face difficulties in getting their insurance approved because of various pre-existing health issues. However, it is not as comprehensive as the level life insurance, which not only covers the mortgage payments but also the living expenses of the policy holder’s family.