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Mortgage disability insurance is a type of insurance coverage that provides resources to mortgage holders in the event they become incapacitated and can no longer generate income to make mortgage payments. Sometimes referred to as disability mortgage insurance, the terms of the coverage normally call for a recognized medical authority to declare the homeowner is temporarily or permanently disabled and is not able to work or make use of other sources of income to make the payments. Taking out this type of coverage helps to protect the homeowner from the possibility of foreclosure at a time when he or she needs to focus more on health issues and either recovering or developing skills to cope with a permanent disability.
While many consumers do not think in terms of a serious illness or disability occurring during their working years, the potential for experiencing at least one protracted period in which the homeowner is not able to work is relatively high. Without the presence of mortgage disability insurance, the chances of losing the home during this period are significant. This is especially true if the homeowner has relatively few financial resources outside the income generated from holding a job that he or she cannot perform during the illness. From this perspective, maintaining mortgage disability insurance can help alleviate worries about at least some of the household finances and allow the homeowner to focus on getting better and eventually returning to work.
Lenders tend to be favorable toward mortgage disability insurance, with some making it necessary to secure and obtain this type of coverage part of the criteria for approving a mortgage application. In some cases, the cost of the premium is bundled into the monthly mortgage payment and forwarded to the insurance company on behalf of the homeowner. Since the coverage helps to minimize risk for both the homeowner and the lender, it is not unusual for banks and mortgage companies to negotiate special rates for this type of insurance plan that are then passed on to the homeowners.
The scope and structure of coverage provided by mortgage disability insurance will vary somewhat, depending on the terms and conditions found in the insurance contract. Many contracts will include detailed information on what types of health issues are covered. For example, some will require that the homeowner be out of work for a specific period of time, and that certain other benefits be exhausted before the insurance plan will begin to cover the mortgage payments. Some policies are structured to make the payments directly to the mortgage lender on behalf of the insured party, while others call for filing claims after each mortgage payment is made, allowing the insurance company to verify the payment to the lender and then reimburse the policyholder.
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