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Mortgage Disability And Critical Illness Insurance

Mortgage Insurance protects us from our mortgage obligation. Due to medical advancement, we are living longer than ever. As a borrower, you may opt to cover disability and critical illness too.

We can acquire assets and wealth thru our ability to earn an income. With sufficient income, we can afford to finance or purchase an asset like a car, house, and boat. When critical illness hit us, the critical illness disrupts our ability to earn an income. Therefore, the bills build up high. And, we are unable to pay off the mortgage or loan.

Mortgage Life Insurance only protects us in the event of death. With all the medical advancement, we are more likely to beat the odds. This is when the disability and critical illness comes into play. Any borrower can opt to add disability and critical illness coverage on mortgage life insurance with a slightly additional cost.

The mortgage disability insurance pays a benefit up to the benefit term. The borrower can decide how long to cover in the event of disability. The average of disability usually lasts an average of three years. Nevertheless, the borrower can decide to cover between two years or to age 65 years old.

The mortgage critical illness insurance pays a lump sum in the event of critical illness. The lump sum can be used at anything like take an early retirement, pay off the mortgage, pay off any expenses, settle the medical bills, or supplement the lost income.

The disability and critical illness insurance usually covers the borrower from heart attack cancer, paralysis, multiple sclerosis, organ transplant, coma, loss of speech, stoke, severe burns, blindness, and loss of limbs. There may be more. Consult your mortgage insurance agent.

This type of insurance coverage started in the eighties by a heart surgeon. The patient who is not fully recovered from critical illness or surgery tries to regain the ability to earn an income. After critical illness or surgery, the patient may not be ready to go back to the work force. The patient needs as much rest until the patient is fully recovered.

Mortgage Term Life Insurance

The mortgage term life insurance pays the beneficiary with amount covered in case the borrower suffers from critical illness, incapacitating accident, or depressing death. The borrower brings home the income to repay the mortgage. With loss of income from critical illness, incapacitating accident, or depressing death of the borrower, the family needs to fend off to repay the mortgage themselves.

The borrower can choose the amount of coverage on the insurance policy. Unlike the mortgage life insurance, the mortgage term life insurance retains amount of coverage as the borrower pays off the mortgage. As the borrower paid off the mortgage, the insurance policy continues. The insurance policy only terminates, when the borrower terminates the insurance policy.

The borrower usually pays the slightly higher premiums with mortgage term life insurance than mortgage life insurance. However, the beneficiary for mortgage term life insurance is the family, co-borrowers, and co-guarantors of the borrower. So, the family, co-borrowers, and co-guarantors can do whatever with the amount coverage. This is a great advantage, because the beneficiary may decide to repay the mortgage, invest the amount coverage, or spend on other expenses. Actually, the borrower can choose whoever the beneficiaries are. Sometimes, it is not necessarily advantageous for the beneficiary to repay the mortgage. In a mortgage life insurance, the beneficiary is the mortgage lender. Now, the mortgage lender can do whatever on the amount coverage.

When the borrower engages in mortgage refinancing, the insurance policy goes with the borrower. The borrower retains the coverage when the borrower sells the home, and buys a new home.

After the thirty days of mortgage approval, the insurance company requires medical exam. The insurance company worries that the borrower may already suffer from critical illness.

The premiums are base on age. The premiums go higher as the borrower gets older. The premium rate for each age group depends on the insurance company.

Mortgage Life Insurance

Mortgage life insurance repays the entire or most part of the mortgage, when the borrower becomes critically ill from disease or accident, or suffers from death. So, the mortgage life insurance protects the family, co-borrowers, or co-guarantors from repaying the entire mortgage.

Depending on the insurance policy, the insurance company pays for the entire mortgage or maximum amount. For example, the insurance company pays up to maximum of $600,000. If the mortgage went over the maximum amount, the insurance company repays the portion of the mortgage up to the maximum amount.

The borrower usually purchases home thru mortgage. It takes a huge amount income to pay off the mortgage. In case of critical illness, debilitating accident, or depressing death of the borrower, the family needs to replace the loss of income to pay off the mortgage. With mortgage life insurance, the family does not need to worry about repaying the mortgage.

Mortgage life insurance differs from private mortgage insurance also known as PMI. The PMI protects the mortgage lenders in case of default of mortgage payment. The mortgage lenders risk the inability to re-sell the property high enough to pay off the mortgage. When the borrower lacks enough money for twenty percent down payment, the mortgage lenders requires PMI. As soon as borrower pays off or the home equity reaches twenty percent, the mortgage lenders automatically cancel the PMI premiums.

Mortgage life insurance is voluntarily. It is the decision of the borrower to sign up for the mortgage life insurance. In order to see the need, the borrower must sit with a certified insurance agent. The insurance agent will analyze the overall financial picture of the borrower.

The insurance policy starts at the same day of the approval on mortgage. Even though the borrower has not paid the first mortgage payment, the borrower still gets the benefit.

As the borrower pays off the mortgage, the mortgage decreases. Naturally, the coverage decreases as well. When the borrower paid in full amount of mortgage, the coverage is gone. And, the borrower no longer needs to pay the premiums.

When the borrower engages in mortgage refinancing, the borrower needs to qualify to the new mortgage for mortgage life insurance again.

Mortgage Refinance Closing Cost

Mortgage refinance closing cost is cost at the end of the mortgage application. When the borrower refinances a mortgage, the borrower also pays the same closing cost to start a mortgage.

Some mortgage lenders offer low or no cost mortgage. It means the mortgage lenders pay for all or most of the non-recurring closing cost. Non-recurring closing cost means the borrower only pay one time. Non-recurring closing cost excludes interest, insurance, and property taxes.

The closing costs may include escrow fee, underwriter, document preparation, origination fee, appraisal, administrative fee, processing fee, wire transfer, mortgage broker fee, tax service fee, and flood certification.

Mortgage lenders charge a slightly higher interest rate. Then, the mortgage lenders get a mortgage rebate. Mortgage rebate is a certain percentage of the mortgage that goes to the borrower, or mortgage lenders. In return, the mortgage lenders use the mortgage rebate to pay off the closing cost. The interest rate may be 0.25%, 0.50%, or 1.00% higher than the regular mortgage.

In a no closing cost mortgage refinance, there are no discount points. Discount points are upfront fee to lower the mortgage. With a regular mortgage, the borrower has the option to lower the mortgage with the purchase of discount points. Each points represents one percent of the principal.

It takes time for mortgage lender to get the money back on mortgage rebate. The mortgage might take as long as 40 months to fully recover the mortgage rebate. So, the mortgage lenders are banking on the borrower to stay more than 40 months.

Since it takes time to recover the mortgage rebate, some mortgage lenders ask for a minimum mortgage principal. For example, the mortgage principal must be a minimum of $300,000.

In some state, the mortgage rebate is ban. So, some state may not have no closing cost mortgage refinance. For example, the mortgage rebate are ban on Alaska, New Jersey, Kansas, Oklahoma, Rhode Island, Louisiana, South Carolina, Mississippi, West Virginia, and Missouri. Consult your mortgage lender or broker.

To many borrowers, the no closing cost mortgage refinance provides an extra flexibility. The borrowers can take on a mortgage without paying for the closing cost. If a great mortgage refinance deal comes, the borrower can refinance again.


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Information and calculation provided on this mortgage calculators website is for general purposes only. It is not intended to take the place of advice from your mortgage brokers.