YOU ASK:

Mortgage Disability Insurance vs. Individual Disability Insurance: Which is better?

WE ANSWER:

When comparing between an individual disability insurance and a mortgage disability insurance, you have to take note that mortgage disability insurance is geared towards protecting your mortgage.

You will have more flexibility with an individual disability insurance for the following reasons:

  • The insurance is paid to you or to your beneficiaries. With a mortgage disability insurance, the payments are sometimes made out to the mortgage company.
  • The payments from individual disability insurance may be used for other monthly expenses, aside from mortgage payments. You may use the payments for monthly needs such as transportation, food and monthly bills.
  • With a mortgage disability insurance policy, your coverage ceases once you transfer banks or once you are able to pay off your loan. Meanwhile, with individual disability insurance, you own the policy so it stays with you.
  • Individual disability insurance can also be more flexible in terms of the benefits you want. You can have your insurance company design a plan for your so that you can be enjoy tax-free benefits for up to 60% of your net income. (This is usually applied for those in the lower income bracket).
  • With the mortgage disability insurance, you may be limited in terms of benefit amount and elimination period. With an individual disability policy, you can have more choices as to the length of the benefit period and the waiting period.

However, mortgage insurance also has its own benefits such as the fact that you can deduct the premiums from your taxes.

An added consideration is the fact that you have to coordinate coverage so that you are not overinsured or do not have an overlap. When this happens, you can't expect to receive more. One insurance will not pay the same amount for what another insurance has already paid for. You will need to arrange your coverage so as to maximize the benefits you stand to receive.

There are some mortgage disability insurance policies that limit its benefits or only allow disability payments when you are receiving less than half of disability payments from your other disability insurance (like your disability coverage from your employer or from an individual policy).

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