Understanding Mortgage Life & Mortgage Disability Insurance

When purchasing a new home, buyers must decide if they want mortgage life insurance and mortgage disability insurance. Both forms of coverage provide some degree of protection if the purchasers become disabled, become terminally ill or die. It is important to know what options are available before deciding. The following points define the various options for both insurances.

1. Reducing Term Mortgage Life Insurance

In the past, this was the most popular type of coverage chosen. The amount owed on the mortgage is the insurance amount, and the death benefit decreases each year as the mortgage is paid down. If the policyholder died suddenly, the remaining amount would be enough to pay off the home. This reduces the chance that the insurance company would pay out more than necessary. For example, they would not want to pay $250,000 to survivors if the current amount owed was only $50,000.

2. Term Life Insurance Mortgage Protection

As a rule, this economical form of coverage is the most popular choice today. With this form of coverage, two basic elements are combined: Term life insurance and mortgage payments. This policy offers the same protection as a regular life insurance policy. There is no decreasing benefit over time. However, the term expires when the mortgage is paid in full, which means the policy serves its purpose for the time needed.

3. Return Of Premium Mortgage Life Insurance

This form of coverage comes with higher premiums than regular term life. However, the main advantage is very clear. If the policy is effective throughout the entire term, all premiums paid are returned to the policyholder. In a way, it is similar to simply making a large refundable deposit in multiple installments.

4. Mortgage Disability Insurance

The disability coverage on a mortgage-based policy is somewhat different than regular disability coverage. There are more limitations, and the benefits can only be used to make mortgage payments. For example, with regular disability coverage, the policyholder has the freedom to use the benefit funds to pay for any necessary expenses. Food, medical care and utility bills can be paid. However, mortgage disability benefits are paid directly to the lender. This ensures that the funds are used only for their intended purpose. Keep in mind that most regular disability policies offer between 40 percent and 80 percent of total income replacement. Having a mortgage disability policy to close the gap and ensure a place to live is definitely beneficial. Research shows that a large percentage of foreclosures are due to people becoming disabled and not being able to make mortgage payments. If an individual does not have separate disability coverage, this mortgage policy can be very helpful.

Every home buyer must decide whether these insurance policies are right for their individual needs. It is also important to read the terms of each policy carefully. Not all underwriters have the same requirements or provisions, so be sure to compare quotes and terms before making a final decision.

Andrew Greene is a freelance insurance writer who blogs for ppiclaims.org.uk, a site he recommends to anyone who wants to learn more about ppi claims.

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10 Most common insurance myths

Insurance policies have become an important part of life with the increase in risks related to life and accidents. These policies can be very complicated and surrounded with a lot of false information. You must not believe everything you hear, because there are many myths associated with your insurance policies. 

The 10 most common myths are as follows: 

1. Benefits should equal premiums:

 Your policy is your buffer against severe financial problems and not to be used for daily ups and downs in life. You must not feel cheated if you have been paying premium for years and never made a claim. 

 2. Everyone needs life insurance:

For some even this policy is unnecessary. The policy is designed to give financial care to your dependents. This includes your children or any elderly person who depends on you. If you do not have any dependents, then you may not need the policy. 

 3. Only the breadwinner needs to be insured: 

It is generally believed that only the person who earns in the family needs to be insured. We tend to forget that duties such as house care, food preparation etc also must be taken into account. Thus a non-working spouse also contributes greatly to the budget; therefore even he or she should be insured for life.

 4. Your car not your responsibility if someone else drives it: 

Even if someone else is driving your car and causes an accident, you will be financially held responsible for it. 

 5. No need to insure old cars: 

According to statistical information old cars are the ones that get stolen the most, because it’s easier to steal them. 

6. Company will pay for a rental car if your car gets stolen:

This is not automatically included in your policy. Even if you have comprehensive and collision coverage the policy will not include a rental car. 

7. You need flood coverage only in a high risk area: 

All areas under a National Insurance Program are eligible to buy flood insurance. You must be insured if you live in a flood prone zone. 8. Umbrella insurance is for rich people: As lawsuits occur so commonly now, this policy is for all home, auto and watercraft owners and not just for the wealthy. 

 9. You don’t affect others when you don’t get insured:

 If you decide to be uninsured, you are indirectly affecting the lives of others. This will include the lives of those who are dependent on you. 

10. Red cars increase your policy premium: 

Many drivers think that car color is an important factor when it comes to paying premiums. This is not true at all.

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How bad credit can affect your family

Financial indiscretions or poor money decisions affect your future and your family. Making late payments, missing payments, owing high balances or opening multiple credit cards lowers your credit score. Even if you made these mistakes during your college years, negative information remains on your credit report for up to seven years. When future creditors evaluate your credit history, your past mistakes indicate that you are a high credit risk. Creditors may refuse to extend credit to you or may assess high interest rates on new loans. Your family’s finances and future are adversely affected by bad credit.

Bad credit limits your ability to meet your family’s current needs. When you owe money to numerous creditors, you spend your income repaying the debts. You have no excess money to repair the leaking house roof or buy new clothing for your growing children. Your spare money goes toward repaying debt accumulated in the past. You also have access to limited financial resources. Already overextended, new creditors may be reluctant to open new credit cards or offer store credit for essential household expenses.

                                       

With poor credit, your family may be unable to obtain affordable housing. If your family expands, your home sustains weather-related damages or elderly parents must move in with you, you could be left without financial resources to purchase a new home or make improvements. Mortgage lenders and property managers perform credit checks on potential buyers. In most cases, they choose to extend credit and favorable interests rates only to the consumers with clean credit records. Poor credit reveals your history of missing payments or paying less than the minimum payment. You may lose valuable housing assistance because of bad credit.

After a vehicular accident, a new baby is born or never ending auto repair bills, you may wish to purchase a different vehicle. Bad credit limits your ability to purchase a reliable vehicle upgrade. While auto dealers advertise loans for consumers with bad credit, the money is not free. You will pay high interest or receive other unfavorable loan arrangements that limit your ability to maintain the payments and stay current on other household expenses.

Repeated phone calls or letters from creditors can lead to emotional stress or depression. Additionally, the weight of unpaid debt strains family relationships. One spouse blames the other for irresponsible spending. The strained relationship inhibits honest communication about a solution, and the debt cycle continues. In many cases, bad credit leads to emotional separation, health problems or divorce. Instead of suffering, work with your spouse to create a solution to your bad credit.

Bad credit indicates the possibility of poor spending habits. Unaddressed, increased spending on credit prevents your family from finding financial freedom. It keeps you stuck repaying creditors for items you probably do not really need.

Learn to live within your means. Record an accurate list of your family’s monthly income and expenses. Look for ways to increase your income, and cut unnecessary expenses. Use the excess money to repay outstanding debts and save an emergency fund. At least once a month, hold a business meeting with your spouse. Address the next month’s bills, and work out a manageable budget. By agreeing together on your financial goals, you improve your credit and protect your family’s financial future.

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