The Basics of Mortgage Protection Tips

Read these 14 The Basics of Mortgage Protection Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Mortgage Protection Insurance tips and hundreds of other topics.

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Can I name my own beneficiaries?

Naming the Beneficiaries of Mortgage Protection Policies

One of the biggest benefits of Mortgage Protection Policies is that they allow you to name your own beneficiaries when you apply for the policy. Mortgage Protection Policies do not require you to name the mortgage lender as your beneficiary, which leaves you a lot of license to name the people that you actually want to receive the death benefit as your beneficiaries.

It's important that you name only those people who have an insurable interest as your beneficiaries, at least initially. This means you must name those individuals who will experience a financial or emotional loss if you should pass away. This generally means direct family members. Generally, close family friends or distant relatives are not seen as having an insurable interest, but you can send a letter to the underwriter along with your application explaining any unique circumstances that should be considered. Once your policy is approved, you can generally change the beneficiary of your Mortgage Protection Policies to any individual(s) you like, whether they have an insurable interest or not.

What should I have prepared when applying for Mortgage Protection Plans?

Mortgage Protection Plans

When applying for Mortgage Protection Plans, it's important that you're familiar with all your medical information and prescriptions. If you're not, then you could unintentionally provide incorrect information on your application. In this case, your policy may be approved erroneously, which could cause a denial of benefits if misrepresentation is discovered after your death. While you may not have intended to provide misleading information, the insurance company does not have to determine whether the missing information was intentional or unintentional before denying the claim.

In order to avoid this, when applying for Mortgage Protection Plans, be sure to have a complete list of all your medications and dosage amounts, as well as copies of your last five years of medical records. You can provide this list and the records to the insurance company so that the underwriting process is fast, complete, and accurate.

Does the death benefit have to be purely my mortgage balance?

How Much Death Benefit Can You Get with Mortgage Protection Insurance?

When it's time for you to start getting Mortgage Protection Quotes, one of the most important considerations you'll need to make is how much of a death benefit you want your policy to have, because your Mortgage Protection Quotes are based on that final dollar amount of the death benefit.

While you certainly want to include the balance of your mortgage into your death benefit for your Mortgage Protection Quotes, you may also want to consider other expenses that could arise after your death. You might consider funeral and burial expenses, college tuition costs for your children, and income replacement. There is no limit to the amount of things you can include in your death benefit, so try to consider all the needs of your loved ones and all of the expenses that will add extra stress to their lives. Taking care of these expenses is one of the best gifts you can give your family.

Do I have to pay the premium on my Mortgage Protection Policies forever?

Mortgage Protection Policies: Unilateral Contracts

Mortgage Protection Policies are considered unilateral contracts. That means that the insurer is the only party in the contract who has an obligation that is enforceable. Now, that does not mean that you can avoid paying the premium on your Mortgage Protection Policies and still get a death benefit; it simply means that you're not obligated to pay the premium if you no longer want the death benefit.

A life insurance policy is an intangible product. Unlike a car or home, you can simply stop paying your Mortgage Protection Policies and walk away from them. If you do, the policies will lapse and will no longer be in force. That means you will not receive a death benefit when you die. Additionally, since term insurance policies have no cash values, there will be no value within the policy that you can redeem. While it is possible to, it is generally not a good idea to allow your policy to lapse, because it leaves you exposed to risk and because a new policy, at your advanced age, will be more expensive.

Should I replace my insurance policy with another?

Insurance Replacement

Sometimes, the mortgage protection policy you bought a decade ago just doesn't suit your needs any longer. Maybe the death benefit is too high or too low, maybe you've lost weight or become healthier since that time, or maybe you didn't shop around enough and are now stuck with Mortgage Protection Costs that are unreasonable. If this happens to you, you may decide to replace your policy with another. If you do, depending on the state you live in, you may have some additional paperwork to fill out.

In general, because Mortgage Protection Costs rise as you age, replacing policies is often not a good idea. It's harder to get a better deal at a later date, and contestability periods start over again when you buy a new policy, which could put you in a delicate position. Insurance companies and state regulators want to make sure that you understand all the pros and cons of replacement and, in order to do so, they sometimes require you to complete a replacement form.

What if I'm not sure how to answer questions on the application?

Understanding Your Health

When it comes to your Mortgage Protection Premium, it's important that you understand any health conditions that you may have. It's not unusual to visit your doctor and get a diagnosis of a serious health condition but not actually understand what you have. This misunderstanding can lead you to misrepresent your health on your life insurance application, which can lead to a claim denial.

If you're unsure about why you take some of the medications you do, or what impact a recent health scare may have had on your health, make an appointment with your doctor before applying for mortgage protection insurance. You can even bring along an application with you and ask your physician if there are any particular conditions on the application that you should state you have. The more you know and understand about your own health, the more accurate your Mortgage Protection Premium is going to be, and the safer your death benefit proceeds are.

Who guarantees that my death benefit will be paid if the insurer goes under?

State Guarantee Associations

Insurance is regulated by each state independently. That means that each state tends to do things a little differently. Some states have something called a state guarantee association, which is there to make good on claims on Mortgage Protection Policies issued by now defunct companies. In order to do this, the state guarantee association must assess a fee to other insurance companies.

It's important to remember that due diligence must still be conducted when choosing a company to issue your Mortgage Protection Policies, even if you live in a state with a guarantee association. You see, guarantee associations have very stringent rules about qualifying situations. So while they're a great backup, you only want to rely on them when you have no other choice. It's also important to point out that they do not guarantee that no claim will be denied—they simply fulfill certain obligations of certain defunct insurers.

If you live in a state with a guarantee association, you'll be given a form to read and sign before your insurance policy can be issued. Be sure to familiarize yourself with the terms of your state's guarantee association.

Is there any way I can be guaranteed increases in death benefit?

Guaranteed Insurability Rider

If you're concerned about the likelihood of your initial death benefit meeting your future insurance needs, then you may want to add a guaranteed insurability rider to your Mortgage Protection Coverage. A guaranteed insurability rider allows you to add additional death benefit amounts to your Mortgage Protection Coverage on specified dates in the future. You will need to pay the additional premiums based on the health and ratings you had at the beginning of your policy, but you will not need to make any additional payments for declines in your health.

Because this rider guarantees your insurability, you won't need to go through underwriting again, and there's no chance of your request being declined. This rider does cost an additional premium, even if you never exercise the option to increase your death benefit, and the dates on which you can purchase additional death benefit are generally very restrictive.

How do hobbies affect my Mortgage Protection Costs?

Hobbies and Mortgage Protection Costs

While some people enjoy safe, mundane hobbies, other people get their kicks doing wild and dangerous activities. Those in need of adrenaline rushes on a regular basis could face steep Mortgage Protection Costs.

For example, think about knitting. The risk of injury, while certainly present, is extremely low. The risk of a deadly injury while knitting is next to nothing. That means that someone whose hobby is knitting is not indulging in a pastime that increases an insurance company's risk, and will therefore not incur increased Mortgage Protection Costs as a result.

Now think about a hobby like bungee jumping. Naturally, the equipment is checked before each jump, and safety precautions like helmets, proper clothing and shoes, proper length of cord, and professional training are all employed—but the risk of injury and death are still far greater when bungee jumping than they are while knitting. That exponentially increased risk will result in increased Mortgage Protection Costs.

How do table ratings work?

Understanding Table Rating

One of the ways that companies increase your Mortgage Protection Premiums is by a method called table rating. Table rating Mortgage Protection Premiums involves assigning a certain table letter or number to the policy premium. This letter or number represents the additional percentage of premium that the policy will be charged.

The percentages can start as low as 25% and be as high as 150%. If your Mortgage Protection Premiums are given a table rating of A, that probably means that you must pay an additional 25% of your premium each premium anniversary date. If your premiums are $400 annually, then that means you will pay an extra $100 per year for a total of $500. If your Mortgage Protection Premiums are given a table rating of F, then you can expect to pay an extra 150% of your premium each premium anniversary. On a $400 annual premium, that means you'll pay an additional $600 a year for a total of $1,000.

Is it a good idea to have more than one Mortgage Protection Policy?

Having Multiple Mortgage Protection Policies

When you initially purchase your Mortgage Protection Policy, you do so with a certain target for the death benefit. You definitely want the death benefit to pay off your mortgage, but maybe you also want it to pay your kids' college tuition costs and replace your income for a few years. But what happens if you get an equity loan, rack up some debt, or have another child before your policy runs out and you end up underinsured? Should you buy another Mortgage Protection Policy?

The purchase of another Mortgage Protection Policy could be a bad move. It might result in premiums that are too high, and having multiple policies can make bills and policy activity harder to keep up with. Instead, you should first complete a form with your current insurance company that requests an increase in the death benefit (or face amount) of your policy. You will need new medical underwriting and may pay a slightly higher premium. You can compare your results with that of a new, supplementary policy and decide which is best.

How do I choose who should be my beneficiary?

Choosing Beneficiaries

It's difficult for some people to decide who should be made the primary and contingent beneficiaries of their Mortgage Protection Plan. While many married couples automatically choose a spouse as the primary beneficiary, many are unsure who should be the contingent beneficiary. Unmarried individuals are often torn between naming a parent or a sibling as primary or contingent beneficiary. In order to help you decide which family member is right for which role, ask yourself some questions:

  1. Who would suffer the most financial devastation as a result of your death?
  2. Who is best equipped to handle the job of settling your debt after your death?
  3. What family members would you like to see get some of your death benefit proceeds for their own personal use?
  4. Will the responsibility of being a beneficiary take too much of an emotional toll on any family members?
  5. Would it be best (and more objective) to name a trust as your beneficiary?

Why do mortgage protection costs increase?

Increasing Mortgage Protection Costs

When you think about whether or not you need mortgage protection insurance, what are some of the factors you consider? Sure, you think about your loved ones' need to pay off the mortgage after you pass away, but that line of thought always leads to your life expectancy. When you're fit and healthy, you don't often think about your life expectancy. But as you get older, less fit, and possibly begin having medical problems and more prescribed medication, your life expectancy seems to dwindle right before your eyes. That is when you really get serious about buying mortgage protection insurance—but what do you think that does to your Mortgage Protection Costs?

There is a direct relationship between your need for mortgage protection insurance and your Mortgage Protection Costs. In other words, the more you need the insurance, the more Mortgage Protection Insurance Costs. That means it's much better to get the policy before your health and fitness levels make you realize how badly you need it.

What is a personal history interview?

Personal History Interviews

Mortgage Protection Companies employ many different strategies to make sure that your health is accurately represented on your application for insurance. One method that many Mortgage Protection Companies use to research your health is a personal history interview (PHI). A personal history interview is a phone interview conducted by one of the representatives of the insurance company. While some Mortgage Protection Companies use underwriters to complete personal history interviews, others have their customer service representatives complete the interviews.

During the interview, the caller will ask you many of the same questions that you already answered on the application. A caller from an insurance company should never ask you for your full social security number, but they may need the last four digits of your social security number to ensure they're speaking to the right person. When they call, be prepared to answer questions about your health history, medications, height, and weight.

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Jerry Mayo