By: Ben Weismer, Mortgage Payment Protection Product Manager, CUNA Mutual Group.
If you’ve talked with members who can’t make their mortgage payments because they’re temporarily disabled and can’t work, you may have heard something like, “I thought I had insurance through work for this,” or “I thought PMI covered this.”
It’s heartbreaking. And, it’s predictable. Just look at the products and programs members might think are covering them in case they can’t work due to illness or injury:
- Private mortgage insurance (PMI)
- Workers’ compensation insurance
- Short-term or long-term disability insurance
- Social Security Disability Insurance
- Mortgage payment protection
Mortgage transactions are already complex. Members may struggle to understand the key differences between the items listed above.
However, at some point before closing, it’s a good idea to ask them how they’ll pay their mortgage if their breadwinner loses his or her paycheck. Be ready to clarify key aspects of these products and programs. Here are a few points that can help you clarify the differences:
PMI protects lenders, not homeowners if you stop making payments on your loan. It will not make your mortgage payments.
Workers’ comp applies only to work-related illness or injury. This is rarely the cause of long-term disability. In a survey by the Council for Disability Awareness, fewer than 5 percent of the workers who claimed disability benefits from 2009 through 2013 also received workers’ comp benefits.1
A 2015 report 2 by ProPublica and NPR detailed the steady erosion of workers’ comp benefits. According to this analysis, many states have not only shrunk the payments to injured workers; they’ve also cut them off after an arbitrary time limit—even if workers haven’t recovered.
Short- and Long-Term Disability Coverage
It’s important for members to double-check with their employers (unless they’ve purchased private policies) about this type of coverage.
It generally applies to non-work-related disabilities. But, it’s easy to misunderstand how much of a paycheck these coverages actually replace, when they kick in and how long they last.
Members may be surprised to learn the limitations of this coverage—or worse: They may discover they don’t actually have one or both of them.
Social Security Disability Insurance
If you’re permanently disabled, this coverage may be provided as a Social Security benefit. The most recent statistics available regarding Social Security Disability Insurance claims show that the rate of denial has climbed every year for the last six years. And, it topped 70 percent in 2013.3 It’s important to note that these claims typically take a long time to process—long enough for an unpaid mortgage to go into default.
Mortgage Payment Protection
Mortgage payment protection products vary; but, in general, they have some key advantages:
- Mortgage payment protection benefits aren’t reduced by other benefits, such as workers’ compensation or long- and short-term disability. So, they can supplement these benefits. This can be critical if the other benefits fall short of replacing the member’s full paycheck.
- These benefits typically kick in after only 30 days of a disability, but other types of benefits may not kick in for several months or longer.
Helping members protect their ability to pay their mortgages supports both members’ and your credit union’s bottom line. Remember, it’s definitely worth having a brief conversation about disability protection before you close a mortgage. That can help you avoid much more difficult conversations later.
Learn more about common misperceptions members could have about insurance for mortgages and how this could lead to falling behind on payments because your members thought they had coverage by listening to our recent podcast Mortgage Insurance Can Make A Member’s Head Spin.
CUNA Mutual Group is the NAFCU Services Preferred Partner Mortgage Payment Protection. Learn more about our Preferred Partner at www.nafcu.org/cunamutualgroup.