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Life Health > Health Insurance > Your Practice

Critical illness insurance: Mortgage protection

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For many Americans their home represents both security and peace of mind. It is typically both their greatest financial investment and their greatest financial assets (for some outside their retirement plan). An unpaid mortgage may be one of the most overwhelming financial threats families face.

Whether this comes from the passing of a primary earner in the home, or high medical bills resulting from some critical illness, the question is: Would our client’s family be able to stay in their home?

In addition to paying their mortgage after a primary earner passes away or a critical illness brings high medical bills along with a loss of income during the recovery phase, protecting their homes for many of our clients means preserving important community and neighborhood connections with friends, schools, church, clubs and relatives.

Death or critical illness and its recovery can be emotionally devastating for our clients. It should not have to also be financially devastating. 

If your client should die before their home is paid for you can help them protect against the loss of their home. They can have either a term life insurance policy, with a term for the length of their mortgage or some form of permanent insurance plan with riders or other features that can be converted or used for retirement purposes after the need for mortgage protection has passed.

But here’s the question that is not often asked and perhaps should be asked. What if your client should suffer a critical illness before their home is paid off? Should their mortgage insurance also have a critical illness provision? One that pays them a lump sum benefit upon diagnosis so they will know exactly how much money they are going to receive to help pay for uncovered medical expenses — you know, benefits that are payable in addition to any other existing coverage?

If your cilent is diagnosed with a critical illness and survives but has a long recovery period, wouldn’t the loss of income from not working cause their family to face just as much risk of losing their home as they would if the client died?

Having a mortgage plan with a critical illness provision might protect them not only if they die, but if they live. It can have provisions like optional hospital indemnity benefits to provide a daily benefit when they are hospitalized to help pay ongoing lifestyle expenses. Or a return of premium benefit so if they are diagnosed with a covered critical illness during the waiting period or die while this coverage is in force their family gets all the premiums paid — less any benefits paid or due of course — and these premiums paid are returned to the family.

So what are the questions you can ask your clients?

  • What is your largest asset?
  • What is your greatest debt?

My experience is most people would probably agree that the largest asset and greatest debt they have during their lifetime is the mortgage on their home.

The Commissioners Standard Ordinary Mortality Table shows that when a 35-year old married couple purchases a home there is a 47% chance that one spouse will not survive to the end of a 30-year mortgage. And the average non-smoker male who purchases a home at age 35 has roughly a 1 in 5 chance (about 20%) of dying before the end of a 30-year mortgage.

So the question is, how would an individual keep up with the regular monthly bills (mortgage payments, utilities, etc.) if he or she was diagnosed with a critical illness and was unable to work for a period of time? How would this individual cover all of the unexpected costs associated with critical illness and still keep up with the mortgage payments?

The Kaiser Family Foundation says the chances of you surviving a critical illness are higher than ever.

  • The percentages of surviving a heart attack have improved 24% since 1950.
  • The percentages of surviving cancer have improved 30% since 1950.
  • The percentages of surviving a stroke have improved nearly 50% since 1950.

So by packaging a critical illness provision with their mortgage insurance plan you help them ensure they have money that can be used to help pay indirect costs such as;

  • Rehabilitation – stroke survivors generally need some type of rehabilitation i.e. speech, walking, feeding themselves.
  • Home health care needs – individuals are released from the hospital much quicker than ever before.
  • Loss of income – could be income lost before disability income begins or from a family member caring for the individual.
  • Home modification – wheelchair ramp, door widening or bathroom modifications.
  • Experimental treatment – that might increase your clients chances of survival but is not covered by their health plan.
  • Child care, housekeeping – needs your client may have during recuperation.
  • Transportation and lodging – for family members during treatment – Chances are an individual suffering from a critical illness will not want to be alone if going out of town for treatment.

So, whether your client dies or survives a covered critical illness, the financial benefits of each product can help protect their largest asset …their home.

It’s a conversation whose time has come.

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