Several different policies referred to as "Mortgage Insurance," "Mortgage Life Insurance" and "Mortgage Protection Insurance" cover the loss of income used to pay off one or more mortgages. As with other types of insurance, you must qualify based on state, federal and insurance carrier rules and regulations. The conditions for coverage and the types of coverage available vary from state to state. Although many insurance companies don't take into account pre-existing conditions, some companies still consider current health, family health history and life habits like drinking and smoking when reviewing applications.
Mortgage life insurance policy terms typically last 15 to 30 years. Depending on the geographic location and the insurance company, you can usually choose between standard, pre-designed plans and a custom-designed, a la carte plan. Some companies pay a benefit if you have a permanent disability or terminal illness. The permanent disability, terminal illness or death benefit decreases as you pay down the policy principal once a year, twice a year, four times a year or every month. If you set up other types of insurance plans with the same company, you usually receive discounts on your other policy premiums.
It's important to note that the insurance company doesn't pay any benefit to your family. Instead, it pays out on an approved claim to your mortgage lender. Given that the decreased benefit and non-direct payout will likely leave your family with no "extra" funds after your disability or death, consider researching term life insurance options in your area. It's also important for you to understand that an insurance company will deny a claim if you aren't completely honest on your application. Additionally, acts of self-harm aren't covered by mortgage insurance. If you fulfill the terms of your policy, mortgage protection insurance helps pay off your mortgages with tax-free funds.