Mortgage protection insurance in Texas

Why Texas's foreclosure process matters

In a non-judicial state like Texas, a lender can generally foreclose under the deed of trust's power-of-sale clause without going to court. That can make the process faster than in states that require a court case, which sharpens the case for having coverage in place before it's needed.

Mortgage protection vs term life

Many mortgage protection policies are decreasing term policies whose benefit shrinks as the loan is paid down, and some pay the lender directly. A level term life policy pays a fixed amount to your beneficiaries, who can decide how to use it. Compare both.

The Texas foreclosure timeline, in statute

Texas Property Code Sec. 51.002 governs foreclosure sales under a deed of trust. For a home used as the borrower's residence, the mortgage servicer must send written notice of default by certified mail and give at least 20 days to cure before it can give notice of sale. The notice of sale must then go out at least 21 days before the sale, and sales are held at the county courthouse on the first Tuesday of a month between 10 a.m. and 4 p.m.

Those windows are short. That's the practical case for having life or disability coverage in place, along with an emergency fund, before a crisis.

Mortgage protection vs credit life from a lender

Most mortgage protection sold to homeowners is individual life insurance, sometimes with disability or critical illness riders, that you own and that pays a beneficiary. Credit life insurance is different: Texas Insurance Code Sec. 1153.003 defines it as insurance on the debtor's life tied to a specific credit transaction, and it pays toward that debt.

Texas's credit insurance chapter caps the amount at the debt owed, limits what a creditor can charge you to the insurer's premium, and requires a refund of unearned premium if the debt is paid off or refinanced early. But Sec. 1153.004 says that chapter doesn't apply to credit transactions longer than 10 years, which covers most 15- and 30-year mortgages. In other words, the consumer protections for credit insurance often won't reach mortgage coverage, so read any lender-offered product closely.

You can use your own policy

Where credit life or credit disability is required as extra security for a debt covered by Chapter 1153, Sec. 1153.161 lets you provide it through an existing policy you own or one you buy from any insurer authorized in Texas. Ask the lender in writing whether a policy you already have will satisfy the requirement.

Rules that apply because it's life insurance

A mortgage protection life policy is life insurance, so Texas life insurance rules apply: TDI says Texas policies include a free-look period of at least 10 to 20 days, policies must have a grace period of at least a month and become incontestable after two years in force (Insurance Code Secs. 1101.005 and 1101.006). If the policy replaces existing coverage, Chapter 1114's replacement notice and 30-day right to return apply.

Questions to ask before buying

Use these to compare a mortgage protection offer with level term life:

• Does the death benefit decrease as the loan balance falls, or stay level?
• Who is the beneficiary: my family, or the lender?
• If I refinance or sell, does the coverage end or move with me?
• What do the disability or job-loss riders actually require before they pay, and for how long?
• Is this an individual policy I own, or a certificate under a lender's group policy?