Q:

What are some pros and cons of mortgage protection plans?

A:

Quick Answer

According to Investopedia and Bankrate, mortgage protection insurance is a bad investment for most homeowners due to its high cost compared to term life or disability insurance, but may be a beneficial option for homeowners who are unable to qualify for term life insurance due to health or hazardous occupations. In addition to its high cost, Investopedia notes that mortgage protection insurance lacks the flexibility of term life insurance and generally has age restrictions and declining benefits over time.

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Full Answer

Financial planners recommend that homeowners examine their overall financial position prior to purchasing mortgage protection insurance. Depending on the homeowner's individual circumstances, paying off the mortgage upon the homeowner's death may not be useful to beneficiaries. Moreover, Investopedia notes that financial planners usually advise against any insurance plan that only pays a particular expense versus a lump sum payout of cash.

The main benefit of mortgage protection insurance is that it typically does not require medical underwriting, as is typical of term life and disability insurance policies, Investopedia explains. However, individuals with health concerns or dangerous occupations may still benefit from other options, such as a guaranteed-issue term policies, which do not have the declining benefits that are a common feature of mortgage protection insurance plans. It may be beneficial for such individuals to carry mortgage protection insurance during the early years of the mortgage and then switch to a guaranteed issue policy as the benefits decline.

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