What is Mortgage Disability Insurance?


Mortgage disability insurance is a special type of credit disability insurance. From its name, you can surmise that it is designed to cover the mortgage loan. The insurance may pay for the monthly payments in the event that the insured is unable to pay due to his disability.

When you think about buying mortgage disability insurance, please consider the fact that a considerable percentage (try 50!) of foreclosures are caused by missed mortgage payments due to disability. Add to this the fact that based on Social Security records, 10 to 20% of the population suffer from some kind of disability even before they reach the age of 65. Mortgage disability insurance is a way to protect yourself against taking a hit on your credit rating just because you suffer from a condition that prevents you from working for a few months.

When you apply for a mortgage, the creditor will usually require you to take out mortgage insurance (not just for disability, but also in case of one's death or unemployment). The creditor will want to ensure that the borrower does not default on the mortgage.

Mortgage disability insurance will only pay for a limited number of months after you are disabled. It may cover the whole monthly mortgage payment amount, but will not pay the entire balance of the loan.

This kind of insurance, though, has its limit, since it will only cover disability and will not pay in the event that you are terminated involuntarily or if your working hours are decreased. There is also a waiting period (usually the first few months) where you have to cover the mortgage payments before the insurance will start making the payments. You will need to have enough savings to cover the first payments. Also, the payments may be reduced if you have other sources of disability insurance compensation.

To make a claim for Mortgage Disability insurance, you have to sufficiently prove your disability. You need to review the terms and conditions of the policy then provide the information needed to help the insurance company evaluate your claim. This may include medical records and a statement from your doctor attesting to the disability.
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