Mortgage Disability Insurance Has Some Drawbacks

Mortgage disability insurance, in most cases, is linked to your mortgage.

Mortgage Disability Insurance Has Some Drawbacks

This kind of coverage seems like a great idea, but it has a few limitations:

  • Disability benefits, whether short-term disability or long-term disability, are tied entirely to the insured person's mortgage payments, without including the monthly expenses of groceries, transportation, and utilities.
  • If you decide to switch the bank holding your mortgage, you lose the coverage.
  • There is a benefit period that is usually restricted to 24 months.
  • Coverage will end if you decide to move to another home, or decide to pay off the mortgage.
  • Disability is defined as being unable to work at any occupation whatsoever, making it hard to collect benefits on a claim.
  • All premiums are based on provincial sales tax.
  • Frequently, coverage is not guaranteed to be renewable if you renew your mortgage.
  • Often you are required to purchase the Mortgage Life Insurance to even have access to purchase the mortgage disability insurance

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Individual Mortgage Disability

An individual mortgage disability plan is designed to fit your specific needs. It can cover as much as 60 percent of your net income without having to pay taxes, though for a higher income earner, the percentage is lower.

Even so, there are many benefits an individual disability policy can offer that are hard to ignore:

  • An applicant can make the choice of the elimination and benefit periods, which means you can decide when you will get paid, and for how long.
  • Applicants who have a low-risk occupation, such as working in an office, are given discounts.
  • Coverage is co-ordinated with any other disability plans you may have, to ensure you are not over-insured. Disability insurance is unlike life insurance, in that that there is a much tighter limit on how much coverage a person qualifies for.
  • A multi-policy discount is available with several different carriers.
  • Most companies will offer a return of premium that will put most, or at least part, of what you pay back into your own pocket if there is no claim made.

Key Benefits of Mortgage Disability Insurance

Having a home is all about security, you want to be able to keep that home if something goes wrong and you find yourself disabled and unable to work. A home is most likely the largest lifetime investment a person will make.

Taking the steps to insure the ability to make payments each month, as well as other expenses, is a top priority.

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When a person is no longer able to continue working due to disabilities, the consequences can become tragic.

Deciding on private mortgage disability insurance provides several options. The main one is having fixed monthly premiums, guaranteed for a period of ten or 20 years. The majority of people opt for the ten year policy; after which they may choose to renew if they still have a mortgage.

For a person who does not want to risk being uninsurable after ten years and paying a significant higher premium for renewal, should choose the 20 year period. A mortgage is usually almost or totally paid off by that time, so you may not need to renew at a higher premium.

If a person has no disability coverage at their place of work, they may take out a disability policy only to cover the principal and interest on the payments.

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But it is a far higher expense, and will not be much help in times of illness or injury, when more finances are needed to replace a lost paycheck.

Private Disability Insurance

A private disability mortgage insurance policy is another alternative that looks very much like bank insurance.

Mortgage Disability Insurance Has Some Drawbacks

The difference is that you control it. When you control it, it stays with you instead of going through renewals if you ever decide to switch your mortgage carrier.

Part of the package is disability insurance, which costs slightly more for anyone under 35. Banks increase the rates as one gets older, while a private policy does not.

Another big difference between the bank's policies and private coverage is that with private coverage, you can have the principal of the mortgage covered in case of death and critical illness. Disability insurance pays your principal and your interest payments, regardless of what they are during that period of time.

Uniquely, they will make the payments, even if there are increases to your mortgage. So, if your payment was $1,500 a month at the time you took out your policy, and since then the rates have increased to become $1,900 a month, it is completely covered, without your premiums changing.

Another Example of Private Disability Insurance

Even more interesting is this example below:

You have been given a raise at work, and have decided to pay off your mortgage faster, instead of renewing it. You decide that you would like the new monthly payment to be $2,000 a month, allowing it to be fully paid off in 10 years.

This new payment is covered and, once again, the disability benefits are the same as before at $1,200. If a person can afford to take out this policy, it ensures that if they become critically ill or die, the mortgage will be paid off in full. The disability payments did not change.

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We're waiting to help you! Click here to ask any question. We'll contact you with your answer, or to make an appointment, free of charge.

Mortgage disability insurance is an important consideration when owning your home.


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