Mortgage Disability Income Insurance? Understanding Short and Long Term Benefits

Consider using Individual Disability Insurance instead of seeking “mortgage disability insurance"

Any time you make a major purchase such as a car or home, the bank will offer you insurance on the loan.Some people think of this as disability mortgage insurance because it is supposed to continue your payments if you become disabled.(Sometimes a separate mortgage life insurance is also offered.) However, purchasing a policy that will only make payments to your bank may not be in your best interest. A much better choice would be to purchase private disability income insurance, also known as long term disability insurance.

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Occupation (please be specific):
If you are self-employed, unemployed or your occupation requires that you carry a firearm, you may not be qualified for long term disability insurance.

Your monthly income:
If your earnings is less than $1500 a month, you will not qualify for disability insurance.

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You may not qualify for disability insurance if you have more than just minor health issues . If you are currently healthy, please type "none" in the box below, if you have only a minor health condition, please describe it below.

While your company may offer this as part of your benefits, you may feel like their benefit is more like short term insurance as it will provide you with a paycheck for only a few weeks or months. If you should be come permanently disabled, you want something that will give you a paycheck until you are able to get Social Security disability or regular Social Security, which ever comes first. If you are too young to actually retire, it can be a long process to be approved for SSI. A privately owned insurance policy can not only pay your mortgage, but also provide your family with money to live on.

Disability insurance offered through your mortgage company has some other drawbacks that are not generally mentioned at the time of sale. The insurance policy itself may be a fully restrictive policy, meaning that you must be completely unable to engage in gainful employment in order to collect. Additionally, there may be a waiting period before it will start to pay, a time during which you must still pay premium. This is not always the case, so you have to check. Finally, the cost of such insurance is often based on the amount of the loan—so much per thousand dollars of coverage needed. Private disability insurance is based on the needed income and is usually a percentage of your latest salary, thus, you would probably be able to draw more than if it was based on the mortgage alone.

Most mortgage companies also offer life insurance on their loans. This can work two ways. It can be mortgage life insurance—a policy which pays the loan if you are deceased, or it could be “mortgage insurance” which simply pays the bank if you default on the loan. Mortgage insurance is sometimes touted as protection in the event of the loss of your job or the onset of a disability. Thus, it can work like disability insurance, but you pay the premium and the bank reaps the benefit. There is no reason to purchase both mortgage disability and mortgage insurance as the two policies would do the same thing. Banks that offer mortgage “life” insurance may bundle it as life/disability insurance. While this is a better option than just mortgage insurance, it is still not as effective as owning private disability insurance.
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