Friday, May 17, 2013

Limitations on Mortgage Disability Insurance Caused by Pre-Existing Conditions

Many times when you apply for a mortgage, receiving the loan may be contingent on your securing private mortgage insurance (PMI). This is required because it protects the lender. If your down payment didn't equal at least 20% of the sale price, then you will need to qualify for PMI in order to get a loan at all. Another type of mortgage insurance, that of mortgage disability insurance, guarantees that if you become disabled and unable to work during the life of your mortgage, this insurance will take over and make your payments for you until such time as you resume working. Unfortunately, if you have pre-existing health conditions, you may not be able to acquire the insurance you need.

There are laws protecting people from discrimination. Insurance companies are not allowed to deny someone coverage based on gender, color, or religion. However, health issues and a few other considerations aren't under this umbrella of protection, so the fate of the insured rests in the hands and policies of the different insurance companies. Insurance agents commonly have lists of limitations and exclusions that will apply to those purchasing MDI coverage. For example, they won't pay off the balance of the loan if the insured commits suicide, becomes disabled as a result of trying to commit suicide, or dies as the result of war. Pregnancy is not considered a covered condition either unless there is some type of abnormality.

There may be an age limit on MDI coverage, however. Many companies halt coverage when the policy holder turns age 65. If the insured becomes disabled or dies during the year immediately following his 65th birthday, then the claim made by his family may be honored. Apparently age discrimination does not apply in this instance even though it seems discriminatory to cut off a long time policy holder just because he turns 65. In addition, if more than one injury is sustained, coverage may be combined into one, adjusted payment.

It's possible that a mortgage holder with pre-existing conditions may not benefit from the purchase of MDI. Prior to buying, a person in this position needs to request that their insurance agent calculate a "need analysis". This calculation measures how much the insured stands to risk if they don't carry the insurance as well how much they could be paid should they become totally disabled. After all, there's no point in pouring money into insurance that won't pay your claims should they arise because you had a pre-existing condition from the onset.

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