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What is mortgage disability insurance?

Mortgage disability insurance is a kind of mortgage protection insurance (MPI)and pays your mortgage if you can’t work, but it isn't necessarily the best coverage option.

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By

Andrew HurstSenior Editor & Licensed Auto Insurance ExpertAndrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Edited by

Anna SwartzAnna SwartzSenior Managing EditorAnna Swartz is a senior managing editor who specializes in home, auto, renters, and disability insurance at Policygenius. Previously, she was a senior staff writer at Mic and a writer at The Dodo. Her work has also appeared in Salon, HuffPost, MSN, AOL, and Heeb.

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Mortgage disability insurance is a limited type of disability coverage that covers some of all of your mortgage payments if you’re hurt or sick and can’t work. Your mortgage lender will usually offer you some kind of mortgage protection coverage when you take out a loan, but you don’t have to accept it.

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Some people can benefit from mortgage disability insurance, but we recommend getting regular disability insurance instead. Mortgage disability insurance payments go directly to your lender, but regular disability benefits come straight to you and you can use them just like you would your regular paycheck.

What does mortgage disability cover?

Mortgage disability insurance covers part or all of your mortgage payments if you can’t work because you’re hurt or sick. Covered illnesses and injuries may include:

  • Anxiety or depression

  • Broken bones

  • Nerve damage

  • Chronic pain

  • Serious illnesses, like cancer or HIV/AIDS

Mortgage disability insurance is sometimes grouped with mortgage life insurance as mortgage life and disability insurance, which also covers your mortgage in the event of your death.

Normally mortgage disability insurance covers your mortgage’s principal and interest, but you may be able to add a rider that extends coverage to any homeowners association fees and property taxes.

How does mortgage disability insurance work?

If you’re unexpectedly injured or become ill, mortgage disability insurance will cover part or all of your mortgage payment until the end of your policy’s benefit period (usually one to three years). 

Payments will go directly to your lender, meaning you won’t get the money yourself like you would with a regular disability insurance policy.

You should file a claim as soon as it’s clear that your illness or injury will prevent you from working, but the payments won’t start until your waiting or elimination period is up. That’s the amount of time after a disabling event that you have to wait before your benefits kick in. Elimination periods vary by policy, but are often between 30 and 60 days.

When your benefit period ends, your coverage will stop, even if you still owe mortgage payments.

Do you have to get mortgage disability insurance?

You don’t have to get mortgage disability insurance when your lender offers it, but there are other types of coverage that may be required.

  • Private mortgage insurance (PMI): This type of coverage protects the lender if you can’t pay your mortgage, and it may be required if you make a down payment that’s less than 20% of your home’s value.

  • Mortgage insurance premium (MIP): You’ll have to buy this kind of mortgage insurance if you have poor credit or can’t make a large down payment and you buy a home with a Federal Housing Administration loan.

These all have similar names, so make sure you only pay for the coverage you need. You should also be careful to check that your lender hasn’t bundled two forms of mortgage protection coverage together without telling you.

Is mortgage disability insurance worth it?

We recommend regular disability insurance over mortgage disability insurance. Even though both provide coverage when you become disabled and can’t work, mortgage disability insurance has a few major drawbacks:

  • Less coverage: Mortgage disability insurance only covers mortgage payments. You can use regular disability insurance, on the other hand, for any expenses, including your mortgage payments.

  • Diminishing value: The potential coverage you’d get from mortgage disability insurance goes down as you pay off your home’s loan, even though your premiums can stay the same.

  • Lender is beneficiary: You’re not the beneficiary of your mortgage disability insurance, your lender is. This is different from a regular policy, where you receive the payments directly.

When is mortgage disability insurance worth it?

Mortgage disability insurance might be worth having if you’re in poor health or you have a high-risk job and don’t qualify for regular disability insurance. 

You’ll have an easier time getting approved for mortgage disability insurance because you won’t have to go through a rigorous underwriting process or medical exam to get coverage.

Otherwise, you’re probably better off relying on regular disability (and life) insurance.

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How much does mortgage disability insurance cost?

The cost of mortgage disability insurance is based on your age and the size of your loan. You might have to pay a certain amount for every $100 of your loan, which can add up quickly if you have a large mortgage, or your total balance may include the cost of your coverage.

In both situations you could end up paying a lot more for coverage than you originally expected if interest adds to your mortgage balance.

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Frequently asked questions

What happens to my mortgage if I become disabled?

You still have to pay your mortgage if you become disabled. If your disability prevents you from working and you have disability insurance, you can use your benefits to continue making mortgage payments.

What kind of insurance pays off your mortgage after you die?

Your dependents can use life insurance benefits to pay off your mortgage after you die. If you bought mortgage life insurance, your mortgage balance will be paid, but your family won’t receive money for any other expenses.

Are mortgage and credit disability insurance the same thing?

Not exactly. Credit disability insurance pays off all or part of a loan that you take out if you’re disabled and can’t work, but not necessarily your mortgage. You get credit disability insurance through a lender when you take out a loan.

Author

Andrew Hurst is a senior editor and a licensed auto insurance expert at Policygenius. His work has also been featured in The New York Times, The Wall Street Journal, Forbes, USA Today, NPR, Mic, Insurance Business Magazine, ValuePenguin, and Property Casualty 360.

Editor

Anna Swartz is a senior managing editor who specializes in home, auto, renters, and disability insurance at Policygenius. Previously, she was a senior staff writer at Mic and a writer at The Dodo. Her work has also appeared in Salon, HuffPost, MSN, AOL, and Heeb.

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