Does Homeowner Insurance Cover Your Mortgage if You Become Sick?

Homeowner's insurance doesn't pay the mortgage if you're disabled.

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It’s a homeowner’s nightmare: Becoming sick enough that you can no longer work, potentially causing you to miss house payments and lose your home. While homeowner’s insurance protects you against fire, weather damage and theft, it does not protect you if you are unable to pay your mortgage each month. Fortunately, there are a variety of other insurance types that can help cover the mortgage in case of illness or job loss.

Homeowner’s Covers Home Issues

For anyone with a mortgage, homeowner’s insurance is mandatory. It’s designed to help make sure the property maintains its value, protecting you and the lender. Homeowner policies vary from state to state, but in general, they cover fire, downed trees, vandalism, broken water pipes, storms and wind. If anyone is injured on your property, that’s covered, too. And while earthquakes, floods and sewer backups are not part of standard coverage, you can add riders to your policy that will cover them. What’s not covered, however, is your actual mortgage. Should you get sick and be unable to work, or lose your job, you would need to have other types of insurance coverage.

Mortgage Protection Insurance

Just as the name implies, mortgage protection insurance is designed to protect your mortgage in the event you can’t pay. It’s essentially a type of life insurance that pays your mortgage if you lose your job, become disabled or die. Mortgage protection insurance is typically issued on a “guaranteed acceptance” basis -- a major benefit for someone who has existing health issues or works in a high-risk occupation. Mortgage protection insurance can be paid as a separate bill, just like auto insurance, or it can be worked into your monthly mortgage payment.

Long-term Disability Insurance

Disability insurance is a way of making sure you’ll still have income each month in the event that illness or injury render you unable to work. Depending on the policy, disability insurance typically pays 60 percent of your monthly salary for a set time, which could range from six months to a maximum of two years. Most group plans -- the type you get from your employer -- have a cap on how much will be paid out, such as $5,000 per month or $60,000 per year. While this doesn’t cover your entire salary, it may be enough to help you make the house payments each month.

Additional Coverage

If you are self-employed or your employer doesn’t provide long-term disability insurance, you can purchase an individual plan that works much the same. And even if your employer does provide it, you can also purchase additional coverage that will insure up to 20 percent more of your income. Depending on your situation, that 20 percent extra can mean real peace of mind.