Mortgage Protection Insurance – The Essentials
Mortgage protection insurance is a type of policy designed to by a financial safety net for those of us who already have mortgages. It's especially beneficial for folks who are on the verge of qualifying for the home loan they want and need, but might be worried about unforeseen events happening, like job loss or divorce.
Essentially, it’s just a way to protect you against losing your home if you go through some life changing circumstances that affect the value of your mortgage. For example, should you lose your job or have a massive health scare that could leave you with expensive medical bills - which would make it impossible to keep up with your mortgage payments – having insurance can help keep you in the right place financially.
Mortgage protection insurance was invented in Australia. Borrowers didn't want to pay for insurance they didn't need, and experts agree that it has played a significant role in the nation's financial success. Australian borrowers are less than 20% of the population, but represent nearly 50% of homeowners, primarily because mortgage protection insurance hasn't been offered by banks in other countries or by other groups and companies.
So how does it work? How can you get this essential thing? And what do you need to look out for when deciding whether you absolutely need it? We've got all your questions answered right here.
The Essentials of Mortgage Protection Insurance
Just like any other type of insurance, mortgage protection insurance pays you if you experience a loss that you're financially unable to recover from on your own. Some people think it's the same as home and life insurance, but it's not. It covers just your mortgage--not your home or anything else that might be attached to it in case of a natural disaster or accident. And in some cases, the cost can be covered by your lender if you take out this type of insurance along with a new mortgage.
So, that's what you need to watch out for before considering getting this type of insurance. It's not a replacement for life and home insurance, and should only be purchased if you absolutely need it. You're probably right in thinking that mortgage protection insurance is an optional thing to have – it doesn't work if you don’t have your mortgage fully paid off and loan in hand. So, here are 3 things to keep in mind before purchasing this kind of coverage:
1. Who Do You Need To Insure?
You don't need to insure every single asset that might be attached to your mortgage since this would amount to over-insuring and weigh on your overall credit score. However, you do need to check if your mortgage is insured. You can ask your bank or mortgage lender about this, but there are a few things to keep in mind.
For example, it's highly advisable to have insurance protection on an investment property that's in the same area as your home and has an investment value more than three times what you owe on the home you're living in. To be sure the rates are reasonable, make sure that it's not less than 1% of the total value of your investments and mortgages.
2. How Much Does It Cost?
The cost of this type of insurance is twofold. Mortgage protection insurance works differently from life insurance, in that you pay for it monthly as a part of your mortgage payments. In most cases, it's expected to cost about 1% to 2% of the value of your home and mortgage. This applies especially if you're dealing with a private lender who is more likely to offer mortgage protection insurance as a way to boost its profits.
As far as the type of policy you get, the specifics will vary by provider. For example, some policies cover what’s called accelerated life events – like disability or critical illness – whereas others only cover unemployment or job loss.
3. Is It Important For You?
You’ve probably heard of the term “rentvesting” by now - it's the idea of renting and investing to make more money at a faster rate. You can start building equity in your investments before you decide to buy a house, which is great for people who aren't sure they want to commit fully or can't afford mortgage payments on their own. But what does that have to do with whether or not mortgage protection insurance is right for you? Well, if you rentvest, it might not be as important that you have this type of coverage because your investments are already paying you instead. That means you have more time to save up money and purchase a home later in life.
On the other hand, if you're saving up for a down payment on a home that “may” be yours one day – or are counting on your investments to help out with mortgage payments – investing in this type of insurance might not be such a bad idea. Just don't go overboard with it. Again, the goal is just to make sure you cover yourself as much as possible before your investments kick in and do their job. And don't forget that there are plenty of things other than mortgage protection insurance that can help protect your finances, like critical illness or income protection insurance .
Get Your Free Mortgage Insurance Quote Today
The important thing is to make sure you protect yourself as much as possible before your investments make a decision for you. It's easy to get overinsured and end up paying a lot more in the long run, and that's not where you want to be. Start today - find out what mortgage protection insurance might be right for you right here . Just fill out the form on our site, then one of our friendly agents will get back to you with competitive quotes from some of Australia’s leading providers - all at no cost to you.
The information provided here is general in nature and does not constitute financial advice. It is intended to give you an initial grasp of the various options available and suggests some further initial steps you can take to narrow your options. Before taking any action, we urge that you consult with one of our professionals who will be able to assist in giving you advice specific to your situation.
Source: ezinearticles.com/1013077 - 3 Things You Need To Know About Mortgage Protection Insurance
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Conclusion
The fact is that mortgage protection insurance can be either affordable or too expensive depending on your circumstances: so it is very important to have a basic knowledge of what factors affect the cost of the cover. It will also help if you familiarize yourself with the terms and conditions of your policy. Finally, to get the most out of your mortgage protection insurance, make sure you check whether or not your lender needs you to have it before they grant a mortgage.