You need proper insurance protection to protect yourself personally, your family as well as assets. Unfortunate instances in life have a way of happening without warning. While we hope that this will not happen to you, the only way to protect yourself and your family from getting into major financial trouble after purchasing a home is to obtain proper insurance cover.
Having the right kind of insurance can make the difference between keeping and losing your home as well as helping your family maintain a standard of living.
Wanting to skip insuring is tempting and a natural human tendency. After all it costs hard-earned after-tax dollars and has no upfront tangible benefit. However, while we hope that you won’t need it, if you need it you will be glad it’s there to protect you and your family’s interest.
These are 7 different kinds of insurance you can use to insure the payments on your mortgage.
Household insurance is also known as buildings and contents insurance. This insurance policy ensures the building and your possessions against damage in the future. A mortgage lender will try and get you to take their own policy which may or may not be a bad deal. As with the original mortgage loan do some research to know if your lender is giving you the best deal on the insurance policy as this as well could say the thousands of dollars in the future.
Lenders offer you insurance from their own companies as it means extra profit for them. It may or may not necessarily be the best deal around but a majority of the consumers choose to go with the lenders in order to avoid the extra hassle.
In view of any damage that might happen to property in the future you should know that the cost of rebuilding and redecorating your home is not the same as the original cost of the house. It is usually much less as for one thing it does not include the cost of the land. However it is crucial for you to get this figure right as underestimating will mean that you are left with a lesser amount of money that you actually need to rebuild your home.
You may also get an independent evaluation done. Be sure to do a realistic evaluation of all the property that is there each room. Some lenders offer a blanket cover package which is based on the number of rooms you have. You may either paying up more than what is necessary or getting under insured. It is more likely that the lender will charge you more than what you need to pay when it comes to a blanket cover package.
The only reason why one considers a life insurance is to provide for the family. All life insurance plans have the same idea of providing your descendants with the insured sum of money in the event of your death.
People also consider taking a life insurance when they have taken out a reverse mortgage on their home so that the next of kin can use that money to pay off the lender and be able to keep the home.
You should consider the fact that getting a life insurance gets more expensive with age. Another option to life insurance policy is a level term assurance which does not charge you a large premium as get older. You should take the advice of a financial professional in order to decide between the pros and cons of the two, since the amount of money that your beneficiaries receive is dependent upon the inflation in the economy.
Mortgage Protection Decreasing Term Assurance
This mortgage insurance is somewhat like a life insurance but is specifically taken for the purpose of paying off the mortgage on the event of the death of the householder. Since the amount you owe on your mortgage decreases with time as you continue to make payments, so does the amount that your beneficiaries will receive on the event of your death.
Permanent Health Insurance
This kind of mortgage insurance provides you with a partial amount of your income should you get ill and are unable to work. This kind of insurance generally pays you regardless of the nature of your illness as long as you are prevented from doing your job due to the sickness.
Although you are covered up to a certain extent by the state they are by far not enough to meet the expenses along with the mortgage loan. Health insurance is usually available for the person and the person family through the company that they work for. You can expect to get 50% to 60% of your income from a permanent health insurance payout and it does not take inflation into account.
You do need to be careful while signing a permanent health insurance contract with the company as to what constitutes their idea of being unable to work. Watch out for phrases like’ own or any occupation’.
This would imply that even though you have lost your job due to illness, you can still work on your own or in a simpler occupation.
This is an extremely misleading condition in the contract as except in very dire cases a person can almost always do something to make some money.
You need to ensure that the insurer insures you for an income based on your current stature of income and employment corresponding with your level of education and experience. There should also not be a clause for premium increases in the future as you get older.
Mortgage Payment Protection Insurance
This is the kind of insurance that allows you to keep meeting your monthly mortgage payments in case of loss of job or disability. Till some time back people who were unable to pay the mortgage due to the loss of job or disability used to get assistance from the state.
This changed 1st October 1995 when anyone who has remortgaged after that date is only eligible for state assistance nine months after becoming unemployed or disabled. Even then the person would have to prove that he does not have the means to meet the mortgage payments. The assistance from state will only cover the interest payments and not the capital amount. If the mortgage is for more than $100,000 you don’t get any assistance at all.
What a mortgage payment protection insurance does is cover you for this kind of an eventuality.
The cost of this kind of insurance would depend on the current economy condition but usually ranges from $4.5 to seven dollars a month for every hundred dollars of monthly payments for a twelve month cover. The payments usually start 30 to 60 days after the date of signing the contract.
Mortgage Indemnity Insurance
This is a rather murky area as far as insurance goes. Many legitimate lenders have dropped this kind of insurance while some still charge it. Some don’t charge it altogether but may be hiding the cost of it in another fee.
Mortgage indemnity insurance only protects lender and does nothing for you. If you cannot meet your future mortgage payments and your house is repossessed and sold for a value that is less than what is owed, the lender is assured for amount that would otherwise have been a loss.
The reason why many mortgage lenders are dropping this is because it seems unprincipled at times because even though the lender has been reimbursed for the short sell, he can try and recover that debt from you in the future with interest.
Lenders who do charge this fee, usually set a threshold. For example, a lender may only require you to pay for this insurance if you are borrowing more than 80% of the home price. In such cases, you can choose to borrow just under the threshold limit.
Critical Illness Insurance
The critical illness insurance gives you a lump sum of money should you contract any of the critical illness you are insured against. You get the money as a one-time payment and you can do whatever you like with it. In most of the circumstances a permanent health insurance makes more sense than a critical illness insurance.