You may find yourself asking, "What is mortgage protection?" Mortgage protection is basically an insurance policy that actually protects your mortgage for you. When you first take out a mortgage, the company with which you take out the mortgage will insist that you also take out mortgage protection. It is usually at this time when most people ask: "What is mortgage protection?"
Mortgage protection is a bit similar to a life insurance in that if you were to die, your mortgage would be paid off by the insurance company. This is very important, especially if you are the main income earner in your household or perhaps the sole earner in the household. At the end of the day, mortgage protection could save your family from having to sell its house in order to pay off the mortgage.You will also normally be covered under your mortgage protection if you are going to default on your mortgage payments due to illness, accident, or even being laid off at work, which would definitely affect your financial circumstances and ability to repay the mortgage.
The Mechanics of Mortgage ProtectionNow that you have a basic understand of what mortgage protection is, you might be curious about the mechanics of how it works. Mortgage protection is actually like a payment plan that you pay into each month (that certain amount known as a premium). This money is then invested by the insurance company to accumulate interest and then is reinvested back into your policy so that if or when you were to die, the whole mortgage would be paid off with that money. The goal of the insurance company is to accumulate more money through your premiums and the interest it earns than the amount they will have to pay under the policy. There are cases where someone may never wind up using his or her mortgage protection.
It is very important to review your mortgage protection policy from time to time in order to make sure that it still suits all of your needs and circumstances. Also, because mortgage protection is so important, (it's one of the most important insurance policies you could ever have next to health and life insurance), it is vital that you pay the premiums on time. There could be serious repercussions if you fail to pay the premiums when they are due. This could be catastrophic because failure to pay the premiums could render the policy null and void, which means that your mortgage will cease to be covered and any premiums you have previously paid into the policy will be lost.
It is also very important to choose your insurance company very wisely. Make sure you have chosen the mortgage protection that actually suits your needs and be sure to always read the terms and conditions of the policy. Although they may seem long and boring, it's the only way that you will find out exactly what your policy covers. Obviously, it is better to know from the start exactly what you have covered than to find out later when you need to make a claim.