Guide to mortgage disability insurance

What is mortgage disability insurance?

Mortgage disability insurance is a specific type of insurance designed to cover your monthly mortgage payments if you become disabled. It can also be known as mortgage payment protection insurance, which is a policy that will pay for some or all of your monthly mortgage payments while you are disabled for a specified period of time.

It should be noted that mortgage disability insurance is technically not life insurance. It will only cover your mortgage payments if you’re disabled due to injury or illness. However, some companies may only offer this insurance option as an add-on in a broader life insurance policy.

How does it work?

Mortgage disability insurance can either be bought as a standalone policy, or as a rider on a mortgage life insurance policy. Once you are diagnosed with a disability, either temporary or permanent, your policy will start paying a portion of your mortgage payment each month.

The policy typically has a 60 day waiting period, which means you will be responsible for paying the first and second mortgage payments after your disability diagnosis. Once the policy kicks in, the insurance company will likely pay your mortgage company directly, meaning you won’t see the money but your payments will be made.

The standard length of coverage on a mortgage disability insurance plan is typically 2 years, which is considered the standard amount of time for people to either recover from a disability or find alternative ways to pay for a mortgage.

Is mortgage disability insurance worth it?

Mortgage disability insurance may be worth it if you have a high-risk occupation and no savings fund to fall back on. It offers peace of mind that if you should be seriously injured, you won’t lose your home before you get your finances back on track.

However, if you’re eligible, it’s definitely worth looking into more comprehensive disability insurance options. These policies replace a portion (usually 60% to 85%) of your monthly paycheck – not just your mortgage payment. Many private insurance companies offer disability insurance, making it a better cost value than mortgage disability insurance offered by a bank.

It comes down to your eligibility for the policies that fit your budget.

Mortgage disability insurance riders

This type of insurance is narrow and specific, which means the options for riders are limited.

Many times mortgage disability is a rider itself on a mortgage life insurance policy. Some potentially useful riders that you could inquire about before you purchase mortgage disability insurance on its own include:

• Return of premium. Allows you to recoup the entire amount of premium you’ve paid for this policy over the course of the policy. It raises your premium during the policy, but you get that money back when the policy term expires without receiving the benefit payout.
• Related mortgage expenses. Extends your mortgage coverage to homeowners insurance, association fees and related expenses.
• Unemployment waiver of premium. Covers your mortgage payments while you look for new employment after involuntarily losing your job.

Pros and cons

Alternatives to mortgage disability insurance

If you’re in good health or work in a low-risk profession, look into other options that can better fit your budget and needs:

• Short and long-term disability insurance. Standard disability insurance offers stronger coverage than a mortgage disability policy, as it replaces a portion of your monthly income and lets you decide how you spend it.
• Traditional term life insurance policy. You might be able to add some type of disability rider to your term life policy. The benefits will likely be narrower than having a short and long term disability policy, but could provide some level of protection.
• Mortgage life insurance. Disability policies only cover you if your disabled, which means they are best used as a rider on a mortgage life policy. This allows you to cover both disability and premature death.

Bottom line

Mortgage disability insurance is a useful protection plan that can help you keep your house if you’re disabled due to injury or illness. Unless you work in a high-risk profession, there could be better options. Before buying a mortgage disability policy, learn more about disability insurance providers.

Frequently asked questions

• Is there a rider that covers premature death?

  No, you can’t put a life insurance rider on a disability policy, although you can usually put a mortgage disability rider on a mortgage life policy.

• Does my employer offer disability?

  Many employers do offer some type of disability protection. Check with your employer to see what is covered exactly and for how long.

• Can I get a shorter waiting period than 30 days?

  Possibly. Check with the insurance companies you’re thinking of going with to see what waiting period lengths they offer. Remember, the shorter the waiting period is, the higher your premiums will be.