Mortgage credit insurance is a type of consumer insurance product that provides additional protection for homeowners in the event they become disabled and are no longer able to make mortgage payments. This same type of insurance can also provide a great deal of peace of mind for survivors in the event that the mortgage holder should die, because the coverage can be used to pay off the remaining balance due on the mortgage loan, allowing beneficiaries to assume ownership of the property free and clear of any debt. In a number of countries, lenders offer this type of coverage as part of the mortgage loan bundle, but the coverage can also be obtained independent of the loan if desired.
At times, mortgage credit insurance may be in the form of some sort of life insurance policy. In this scenario, the coverage helps to ensure loan repayment in the event that the insured party should die before the mortgage is retired. In a sense, the lender serves as the beneficiary of the policy, and receives payment in full from the insurer. This makes it possible to retire the loan with relative ease, freeing the deed to the property for transfer to whomever the insured party designated as his or her heir.
Some forms of mortgage credit insurance also provide temporary aid in managing mortgage payments. For example, if the homeowner is out of work for an extended period of time due to job loss or an incapacitating illness or injury, the insurance policy will cover the cost of those mortgage payments. This helps to alleviate at least one worry for the insured party, allowing the individual to focus on recovery from the health issue instead of spending time trying to find a way to keep the mortgage current.
It is also possible to obtain mortgage credit insurance that provides benefits in the event of a permanent disability. Here, the terms of the policy provide partial or complete coverage of the mortgage payments once the insured party has been declared disabled by recognized medical authorities. Depending on the provisions within the policy, the insurer may settle the full amount of the mortgage in one lump sum, or continue to make payments according to the original monthly schedule. In either case, the disabled homeowner does not have to go into default and avoids the possibility of losing the home.
The cost of mortgage credit insurance varies, depending on the scope of the coverage and the general health condition of the individual who is taking out the policy. Typically, there are few barriers to securing this type of coverage, although it may be more difficult in some nations than in others. As a financial tool to help with situations such as sudden job loss, an incapacitating health issue, or even death of the homeowner, this type of insurance protects the interests of not only the person buying a home, but also the lender who is managing the financing for the purchase.
