How are home loan payments ensured in case the borrower dies or becomes disabled?
Mortgage Redemption Insurance (MRI) is the key. MRI protects both the borrower and the financing institution (mortgagor and mortgagee). In the event of death or disability of the borrower or buyer, the proceeds from the insurance will be applied to the payment of the debt so that the borrower’s family or heirs will not have to shoulder the obligation.
For example, if the loan balance at the time of death or incapacity of the borrower/buyer is P2.7 million and the MRI coverage amount is P3 million, the insurance company will pay the bank-mortgagee the amount of P2.7 million, and the beneficiary the amount of P300,000—assuming of course that the claim is approved.
What is the purpose of this insurance?
It actually extinguishes the obligation upon approval of the claim. It also prevents the cancellation of the purchase transaction. It’s very important because it ensures that the property will be kept by the buyer and/or his or her family in the event of the death or disability of the borrower.
Where does one apply for an MRI?
The mortgagee-bank will require the buyer to obtain an MRI from an insurance company to cover the housing loan. It is actually part of the whole mortgage and loan application process. In most cases, the bank has a recommended or accredited insurance company. But the buyer can also ask an insurance agent or real estate broker for their recommendation.
How much does it cost?
The cost depends on the age of the insured, the amount of the loan, and the period of coverage.
Is it necessary, even if one already has another home insurance or life insurance coverage?
It is necessary on top of other home insurance coverage, like fire insurance, which insures property against fire only. If the borrower has an existing life insurance coverage, he can opt to assign the proceeds of this life insurance to pay the balance of his home loan in case of his death, as long as the coverage is sufficient to cover the amount of outstanding mortgage. If the life insurance coverage is not enough to cover the balance of the home loan, the bank may require a separate MRI with sufficient coverage.
Property Report thanks HiveScout Realty’s Atty. Cris Garcimo, our resource person for this article.
USEFUL TIPS
For the borrower:
1. Read the provisions of the insurance policy very well. And fill out the MRI form carefully and truthfully. The omission of important information may cause the denial of the claim.
2. Take note of the insured amount and the period of coverage.
3. Pay the required premium for the renewal of the MRI.
4. Verify if permanent disability is covered by the MRI.
5. Designate someone to process the claim in case of the death of the borrower.
6. Choose a reputable insurance company. Consult an insurance agent or a licensed real estate broker. You can also ask your friends or relatives for feedback on MRI insurance companies that they have dealt with.
For the claimants/beneficiaries:
1. File the notice of claim and submit all the requirements within the period stated in the policy. It is usually 30 days from the death of the insured.
2. The required documents include the following:
• Government IDs of the insured and beneficiary
• Certificate of Death
• Medical Certificate
• Medical history, if applicable
• Proof of relationship of the claimant-beneficiary to the insured (birth certificate, etc.)
• Bank account of the beneficiary
3. Consult your loan officer or a licensed real estate broker to guide you during the claims process.
4. If you are the beneficiary or a relative of the insured, immediately notify and coordinate with the developer/seller, bank-mortgagee, and the insurance company that issued the MRI. Remember that the insurance company can deny a claim if it was filed beyond the period for filing a claim, as provided under the policy.
5. Prepare a receiving copy of all the submitted documents to establish proof of submission.
6. Regularly follow up on your claim after submitting the required notice of claim and documents. Call, send SMS, or e-mail the account office handling your claim. You may also consult or seek the help of a lawyer or real estate professional in complying with the submission of the required documents or, in case of delay, unreasonable requirements and denial of your claim.