credit hardship insurance

March 30, 2008 11:59 PM

My mother is planning on buying Mortguage Insurance, through a credit source. Do these types (loss of employment, illness or such) plans work or; is there fine print that the company is able to option out legally. As I have never met a person with these credit insurances paying off for during hardship.
posted by thomcatspike to Work & Money (2 answers total)

A few things about mortgage insurance:

If you are referring to payment insurance, where in the event of financial hardship the company will make your mortgage payments for you – consider skipping this and just setting aside the money to create an emergency fund. If you were talking about mortgage insurance then read on:

1. You need to know what theyconsider to be loss of employment and illness. For example, if your mother is a teacher and she is injured or disabled will they pay out even if she were to be able to work at McDonalds? A good disability insurance policy should consider "own occupation" to be the standard, not what she may be capable of doing. FYI: A friend of mine was recently hospitalized for 6 months and her disability insurance did pay her.

2. Additionally, I have found critical illness insurance (not specifically mentioned in your question but they usually try to sell it at the same time) not to be worth while as they only pay for a very specific list of ailments and if you are unable to work due to the illness then the disability insurance will protect you. It is pretty much a small cash prize if you have a heart attack and then go back to work.

3. If your mother is in decent health (medical screening may be required) she may want to consider getting life/disability insurance rather than mortgage insurance. Check the numbers that you have been quoted but in general a 20 year term policy seems to be cheaper than what the credit source may offer and a better value. Mortgage insurance only pays out the value of the mortgage so if your mother buys a $500,000 house then dies in 15 years when there is only $200,000 remaining on the debt, that is all that is paid. If she had a 20 year term-policy $500,000 would be paid out, leaving $300,000 for her dependants.

In all cases make sure that she purchases the insurance from a reputable company (check customer reviews/complaints). The insurance will include something about “pre-existing conditions”, however usually after two years without a claim all causes of death/disability are covered, look for this. Also, make sure that only she and not the insurance company can cancel the policy.

Good luck!
posted by saradarlin at 12:55 AM on March 31, 2008

I think you're in the States, thomcatspike, but you might still be interested in this piece on mortgage insurance from the CBC's Marketplace. The verdict, at least from a Canadian standpoint, is not good:

http://www.cbc.ca/marketplace/in_denial/
posted by Hellgirl at 7:57 AM on March 31, 2008