Mortgage protection insurance: Do you need it?

How does mortgage protection insurance work?

Mortgage protection insurance is a policy that pays off the balance of your mortgage if you pass away, and is typically sold through mortgage lenders and banks. Lenders like mortgage protection insurance for one simple reason: lenders get paid in the event that you pass away. With a standard life insurance policy, the death benefit goes to the beneficiaries of your choosing; with a mortgage protection insurance policy, on the other hand, the lender is the beneficiary.

Since the lender will be paid the remaining balance of your mortgage, your family will not benefit directly. For instance, say you owe $150,000 on your mortgage; your mortgage protection insurance policy will pay that off and the property would become mortgage free. However, your family does not get a say in how that cash is spent.

The death benefit of your mortgage protection insurance policy decreases over time because your mortgage decreases over time, as you make your payments.

Benefits of mortgage protection insurance

The benefits of mortgage protection insurance include the following:

Guaranteed approval. There is guaranteed approval for mortgage protection insurance, even if you work a dangerous job or are already in poor health. When applying for mortgage protection insurance, there are no lab tests or medical exams.