Mortgage disability insurance is protection that can help you stay in your house if you become injured or ill and can no longer work. But other types of insurance could cover a wider variety of bills if you’re unable to work due to disability.
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. Also known as mortgage payment protection insurance, this policy will pay for some or all of your monthly mortgage payments while you are disabled for a specified period of time.
Mortgage disability insurance is not life insurance. It will only cover your mortgage payments if you’re disabled due to a covered injury or illness.
How does mortgage disability insurance work?
Mortgage disability insurance can either be bought as a standalone policy, or as a rider on a mortgage life insurance policy. Once you’re 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 30- or 60-day waiting period, which means you’ll be responsible for paying the first or second month’s mortgage payments after your disability diagnosis. Once the policy kicks in, the insurance company will directly pay your mortgage company, 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 one to three years, which is the most common amount of time for people to 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 or a pre-existing condition. Otherwise, you may be eligible for a stronger disability policy.
Mortgage disability policies are usually guaranteed issue, which means that if you have health problems or work in a high-risk profession it won’t affect your approval for this coverage. However, finding alternative life or disability policies may be difficult.
Examples:
You have pre-existing health conditions and work as a roofing contractor, which is considered a high-risk occupation. If you’re the sole breadwinner in your household, then a mortgage disability policy might make sense. It could be difficult for you to secure other forms of disability insurance, and your mortgage payments depend entirely on your ability to work.
You’re healthy and work in a low-risk profession, such as an office job, then traditional disability may better fit your needs. This coverage often costs less and offers greater flexibility in how the benefit amount is used.
Compare disability insurance companies
If you’re open to reviewing your traditional disability policy options, use the table below. Check the compare box below the providers then click compare to see the details listed side by side.
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. Common riders available when purchased as its own policy include:
Return of premium. Reimburse the premiums you’ve paid into the policy once the term expires. You’ll pay up to 30% more to add this coverage to your policy.
Related mortgage expenses. Extend your mortgage coverage to homeowners’ insurance, association fees and related expenses.
Unemployment waiver of premium. Pause your mortgage repayments while you look for new employment after involuntarily losing your job.
Pros and cons
Pros
Guaranteed issue. For people with health issues or high-risk professions, the ability to secure some type of insurance is a plus.
Protects one of your biggest assets. Your home is a big investment, and traditional life insurance applies only after you die. Whereas this policy covers your house payments if you’re disabled for an extra layer of protection.
Cons
Only covers one expense. This insurance doesn’t cover auto payments, student loans, credit cards or any other debt.
No flexibility. Unlike traditional disability, you have no say in how the money is used. It must be paid to your mortgage company, and if you sell your house, you don’t receive any money back.
Declining benefit. Though you’ll pay a consistent premium, as your mortgage decreases over time, so does the benefit amount. It may not make sense to keep this policy if you’re close to paying off your mortgage.
Doesn’t cover home equities. Mortgage disability insurance covers your mortgage payments only, not home equity or related loans.
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.
Supplemental disability insurance. Designed to fill the gap between the amount of income paid by a short- and long-term disability plan and the rest of your income.
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 more narrow 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 you’re 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 have health issues or work in a high-risk profession, there may be better options. Before buying a mortgage disability policy, compare disability insurance companies.
Andrew Flueckiger is a licensed insurance agent and Certified Insurance Counselor with experience in insurance and finance. A graduate of Indiana University, Andrew contributes a wealth of knowledge and experience to Finder. When Andrew isn’t writing, reading or practicing insurance, he can be found spending time with his family and playing the guitar.
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