While the recent mortgage crisis created a number of tragic stories about people losing their homes, there is another dark side of the mortgage business. These tragedies occur year in and year out, in good markets and bad. Unfortunately, they are less about the condition of the financial markets than about the death of a young homeowner and father or mother.
One of the realities of youth is the inability to contemplate one’s death, especially while still young. Yet, statistics show that thousands of homeowners with outstanding mortgage balances die from disease, accidents and other causes each year. In fact, more than 12 out of 100 homeowners die before paying off their mortgages, and more than 48 percent of all foreclosures are the direct result of untimely death or disability. Just one more sobering fact is provided by the National Safety Council, indicating that a fatal injury occurs every 5 minutes in the U.S. and a disabling injury every 1.5 seconds.
Fortunately, just a little planning and a surprisingly modest monthly payment can provide protection against the loss of a home after such a tragedy. For several decades the availability of affordable mortgage protection insurance has served as a source of great peace of mind for many young families and homeowners. While general life insurance provides a pool of money to deal with immediate and future needs, the special role of mortgage insurance is to eliminate any outstanding balance on a home loan.
If an individual dies with an outstanding debt on their home, that loan becomes a part of the final estate. Depending on a number of factors, the mortgage may be paid if there are adequate proceeds, or left to go into foreclosure. Even if there is a sizeable insurance settlement available, this is most often needed to replace the income of the deceased, not to pay off a large mortgage.
The availability of dedicated funds to deal with a mortgage liability is the idea behind this form of specialty insurance. It is often significantly lower than other insurance, as the insurance provider’s total exposure declines over time, and goes away if the homeowner lives long enough to pay the home loan off totally.
While the risk to any single family of such a tragedy is small, the severe consequences of being left with a large unpaid mortgage are very great in many cases. The fact that these potential hardships can be easily and affordably eliminated with a mortgage insurance policy makes it a wise financial decision for many families.
AUTHOR Derek Sall
Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially--one email, one article, one person at a time.