The short answer
When you work for yourself, your family's home often depends on your business income. If that income stops, there is no employer benefit to fill the gap.
Here is how to get mortgage protection insurance as a self-employed homeowner, from the application to the riders that make the most sense.
Part of our complete guide: Mortgage Protection Insurance: The Complete Guide.
Quick answer
A benefit close to your mortgage balance rarely needs much income proof. Larger amounts may require tax returns; insurers usually average recent years. Waiver of premium and living benefits matter more when you can't take paid leave.
MarketView Agency is an independent insurance agency (National Producer Number 18345705).
On this page
- Mortgage protection insurance for self-employed: how self-employment affects your application
- Mortgage protection for business owners: riders that matter more when you work for yourself
- What is mortgage protection insurance?
- How much coverage do you need?
- Mortgage life insurance when you work for yourself: how underwriting works for mortgage protection
- How long should the policy last?
- One policy or two?
- Should the coverage shrink with your loan?
- Who mortgage protection is for (and who it isn't)
- Frequently asked questions
Mortgage protection insurance for self-employed: how self-employment affects your application
When you work for yourself, there is no group life policy from an employer and no paid leave to fall back on. That makes your own coverage more important, not less.
Insurers will ask what you do and how you earn. For a policy sized to the mortgage, that is usually enough. If you want more coverage to replace income, expect to show tax returns. Keep them handy and the process moves faster.
Mortgage protection for business owners: riders that matter more when you work for yourself
For a business owner, being unable to work can hurt as much as anything else. Some mortgage protection policies offer riders that help.
- Waiver of premium keeps the policy in force if a covered disability stops you from working.
- Living benefits can pay part of the death benefit early for a qualifying serious illness.
- Mortgage payment or disability income riders on some policies pay a monthly amount for a set period.
These riders vary a lot by carrier. Read the definitions of disability and illness closely, and compare.
Compare rates from several carriers in about two minutes. Free, no obligation.
What is mortgage protection insurance?
Mortgage protection is a way of using life insurance to keep your home in the family. You pick a coverage amount close to your loan balance and a term that matches the years left on your mortgage.
- If you pass away while the policy is in force, your beneficiaries receive the benefit.
- They can pay off the loan, keep paying it, or use the money for other needs.
- The benefit is generally income-tax-free to them.
- Many policies include living benefits for serious illness.
Because it is usually term life insurance, the premium stays level for the term on most policies, even as your loan balance goes down.
How much coverage do you need?
A simple way to size coverage is to add up what your family would need to pay off or replace. Some agents call this the DIME method:
- Debt. Car loans, credit cards and other balances.
- Income. Years of income your family would need to replace.
- Mortgage. The balance on your home loan.
- Education. Future school costs for your children.
Subtract savings and any coverage you already have, such as a group policy through work. What is left is a reasonable target. You do not have to cover everything with one policy, and it is fine to start with the most important need.
Mortgage life insurance when you work for yourself: how underwriting works for mortgage protection
Underwriting is how an insurance company decides whether to offer a policy and at what price. It sounds technical, but the idea is simple. The insurer wants a clear picture of your health, your habits and how much coverage you are asking for.
The application
You answer questions about your age, height and weight, tobacco use, medical history and prescriptions. Answer every question fully and honestly. A wrong answer can give the insurer grounds to contest a claim later, especially in the first two years of the policy.
Database checks
Most insurers check prescription history and a shared industry database of past applications. Many also look at your driving record. These checks are why some policies can skip a medical exam: the records answer many of the same questions.
Exam or no exam
Some policies ask for a short exam at home or work, usually a quick health check and a blood and urine sample. Others decide from your answers and records alone. A policy without an exam is faster, but it can cost more or cap how much coverage you can get.
Once the insurer finishes, it offers a rate class. Healthier applicants get better classes and lower rates. If the offer is higher than the quote, an independent agent can often take the same application to another carrier that views your history more kindly.
How to get covered in 3 steps
- Check your rate. Pick your state and answer a few quick questions about the coverage you want.
- Compare carriers. A licensed agent compares mortgage protection options from several insurers and explains the trade-offs.
- Apply and get covered. Many applications take one phone call. Coverage starts once the policy is issued and the first premium is paid.
How long should the policy last?
The simplest rule: pick a term that lasts at least as long as the years left on your mortgage. Common choices are 15, 20, 25 and 30 years.
- New 30-year loan: a 30-year term usually fits.
- Loan with 18 years left: a 20-year term covers it with a little room.
- Planning to pay it off early: a shorter term can save money, but it is a bet on the payoff date.
If you have children at home, you may also want the coverage to last until they are on their own. That can point to a longer term even if the loan is shorter.
One policy or two?
You do not have to cover every need with one policy. Many families use two: a longer term for income while children are young, and a term matched to the mortgage. As each need ends, so does its policy and its premium.
Layering can cost less over time than one large, long policy. It also makes it easier to fill a gap without replacing coverage you already have.
Should the coverage shrink with your loan?
Mortgage protection comes in two main shapes. With level term, the benefit stays the same for the whole term. With decreasing term, the benefit drops over time, roughly in step with your loan balance.
| Feature | Level term | Decreasing term |
|---|---|---|
| Benefit over time | Stays the same | Goes down |
| Price over time | Usually level | Usually level |
| Left over after the loan is paid | Often money left for your family | Little or nothing |
| Best for | Mortgage plus other needs | Covering the loan balance only |
Many people pick level term. The price difference is often small, and your family keeps any money beyond the loan balance.
Who mortgage protection is for (and who it isn't)
Often a good fit
- Homeowners whose family depends on their income to make the mortgage payment. Couples who need both incomes. Single parents. Anyone with little or no other life insurance. Self-employed owners without group coverage.
Maybe not the right fit
- People whose existing life insurance already covers the mortgage and other needs. Homeowners with a small balance and plenty of savings. Households where no one depends on the income that pays the mortgage.