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February 5th, 2009

What Kind of Mortgage Insurance Do You Need?

Before we try to answer this question it is important that you become aware of the common risks of homeownership. So you can identify them and include them to form you own mortgage insurance plan.

Some Risks Of Homeownership

Loss of income can force people to default on their mortgage and lose their homes. Private Mortgage Insurance (PMI) may be required on new home loans because it pays the lender in case they lose money on a home loan. On the other hand, layoff protection, or unemployment mortgage plans, provide cash in case to members in case of a layoff. This cash can be used to keep a mortgage current during a period of unemployment.
Most of the time, family’s depend upon one or two breadwinners to pay the mortgage. For most families, this would be one, or both, of the parents. If one or both of the main wage earners pass away, the family could lose their home. Mortgage life insurance, a form of term life, provides cash to pay off a home loan in case an insured person dies. Some policies also contain riders (options) to pay benefits in case of disability or critical illness.
The actual home, property, and possessions also carry a big risk. Homes can be damaged in fires or storms, or personal property could be stolen. Homeowners insurance covers the actual property, buildings, and personal possessions.

What Kind of Mortgage Insurance Do You Need?

Some types of coverage may not be optional. For instance, a lender may require some borrowers to buy PMI if the down payment is less than 20% of the home’s value. Most lenders will also require proof of homeowners insurance before they will approve a loan.

Other products, like mortgage life insurance, will be purchased by prudent homeowners who want to make sure that their family can keep their home if the main earners cannot work because they die, become critically ill or disabled.

More recently, consumers have been considering mortgage unemployment protection, because they want to make sure they can make their mortgage payments during temporary periods of unemployment. This product has been popular in the UK for years, but has only been introduced to the US market recently. Layoff protection plans can provide temporary cash payments to help homeowners make loan payments and pay other bills.

Responsible homeowners evaluate their own unique needs, comfort level, and budget. Then they will research available coverage to find affordable coverage from top insurers. We try to make this job easier with free online insurance quotes and more mortgage insurance articles.