Cost & Coverage
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Mortgage disability insurance — sometimes referred to as mortgage payment protection insurance — is a type of long-term disability insurance meant to specifically cover some or all of your mortgage payments if you can’t work due to illness or injury.
Mortgage disability insurance is offered as a standalone disability policy or as part of a broader mortgage protection insurance policy (MPI). MPI is essentially a term life insurance policy that covers your mortgage (yes, just your mortgage) if you die, whereas mortgage disability insurance pays your mortgage if you become disabled.
Given mortgage disability insurance is so narrow, people are generally better served by a long-term disability insurance policy, which offers more robust coverage.
While MPI policies touting disability coverage will consider your profession when determining your premiums, they’re otherwise approval guaranteed. That means you’ll qualify without going through the rigorous underwriting process associated with traditional life insurance or even disability insurance applications. That’s not necessarily a plus. Unless you’re in poor health, you’ll likely qualify for a lower premium — and better coverage in general — through a term-life insurance plan.
Having said that, if you are in poor health or work a high-risk job and can’t qualify for traditional life or disability insurance, mortgage disability insurance is, well, better than nothing.
In most cases, mortgage disability insurance is the rider to a MPI policy, covering mortgage payments up to a certain amount in the event of illness or injury, not just death. A disability income rider entitles you to a monthly stipend if you’re unable to work due to illness or injury, while an accident-only disability income rider covers you only in cases of (you guessed it) accident.
Beyond that, some standard MPI riders exist. Keep in mind, these riders will up the total cost of the policy.
Long-term disability insurance — also known as LTD for short or sometimes income replacement insurance — covers up to 60% of your pre-tax monthly salary if you’re unable to work for a long period of time due to illness or injury. LTD policies typically pay to retirement age (65), but also offer benefit periods of two, five or ten years.
Short-term disability insurance, or STDI, is essentially a complement to LTD. It covers your income if you’re unable to work for short period of time due to illness or injury. STDI usually lasts for three to six months and covers about 80% of your gross income.
Supplemental disability insurance, or SDI, is meant to (you guessed it) supplement an employer-sponsored disability insurance plan. Most work group plans only cover 60% or less of your income.
Some people even purchase disability insurance and life insurance together, so if they become disabled, they can continue paying their life insurance premiums.
Not sure how much disability insurance coverage you need? We have more resources below that can help.
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