One of the questions we get asked every time we talk with people about Mortgage Protection is what it is? Is this part of my mortgage? Don’t I pay for this already with PMI?
First, PMI or Private Mortgage Insurance, protects the lender from losing money if you, for any reason can no longer pay your mortgage premium and end up in foreclosure. PMI he does not protect you in any way it only protects the lender.
Most of the people we work with want to either pay down or pay off their mortgage in the event they pass away prematurely or suffer from a chronic or critical illness protecting those left behind. They want to ensure their spouse and family will not have to relocate because they cannot afford to stay in the family home.
How mortgage protection has always worked in the past, is that in order for a lender to receive the money to pay off your mortgage it is funded through a term life insurance policy. The lender is owner of the policy as well as the beneficiary. When you pass away the lender received the check to pay off the balance of the loan.
Today, we can do things quite a bit differently. We can leave the monies from a life insurance policy directly to the surviving family not involving the lender. This, in our opinion, is far better as it provides options to the family left behind. Options such as being able to take the monies and move elsewhere.
Actually, the proceeds from your term life insurance policy can be used for any purpose your beneficiaries choose. If your mortgage has a low interest rate, they may want to pay off high-interest credit card debt and keep the lower-interest mortgage. Or they may want to pay for home maintenance and upkeep.
Whatever they decide to do, that money will come in handy. The point being is that by having your family as the beneficiaries they can decide what it’s best for them.