Haris Ashley
Credit disability insurance, also known as accident and health insurance, is an agreement between the borrower and an insurance company. If the borrower becomes ill or injured and is unable to work, the insurance company covers all or part of the loan under the terms outlined in the agreement. Credit disability insurance is not the same as mortgage disability insurance, which is a type of mortgage protection insurance (MPI) that pays off your mortgage if you become disabled and are unable to work. While credit disability insurance can be used for any loan, mortgage disability insurance specifically covers mortgage payments. In New York, there are disability exemptions and benefits for disabled persons, such as property tax reductions for eligible disabled homeowners.
| Characteristics | Values |
|---|---|
| Credit disability insurance | Also known as accident and health insurance, it is an agreement between the borrower and an insurance company. |
| Who provides it? | The lender when you take out a loan. |
| What does it cover? | All or part of a loan that you take out if you’re disabled and can’t work, but not necessarily your mortgage. |
| How does it work? | If you have a credit disability policy and you become ill or injured and cannot work, the insurance company makes payments on the loan under the terms set out in the agreement. |
| Is it mandatory? | No, it is optional coverage. |
| What happens if I cancel it? | You have 30 days from the date you receive your Certificate of Insurance to review your coverage and decide if it meets your needs. If you cancel your coverage during this 30-day review period, you will receive a full refund of any premiums paid. |
| What is the waiting period before benefits are payable? | There is a 30-day waiting period following the date of disability. You are responsible for your regular mortgage payments during the waiting period and until your claim is approved. |
| What is the benefit amount? | Calculated by rounding the principal and interest portion of your total monthly mortgage loan payment (on the date you applied for Mortgage Disability Insurance) to the nearest $100, up to a maximum monthly benefit of $6,500. |
| What is Mortgage Disability Insurance? | A kind of mortgage protection insurance (MPI) that pays your mortgage if you can’t work, but it may not be the best coverage option. |
| What are the drawbacks of Mortgage Disability Insurance? | Less coverage, diminishing value, and the lender is the beneficiary, not the homeowner. |
| What is Mortgage Protection Insurance (MPI)? | Pays off your remaining home loan balance if you die or become disabled. The insurance payout is made directly to the mortgage lender, rather than a beneficiary of your choice. |
| What is Private Mortgage Insurance (PMI)? | Protects the lender if you can’t pay your mortgage, and may be required if you make a down payment of less than 20% of your home’s value. |
| What is Mortgage Insurance Premium (MIP)? | You have to buy this if you have poor credit or can’t make a large down payment and you buy a home with a Federal Housing Administration loan. |
| What is the exemption for persons with disabilities and limited incomes in New York? | Local governments and school districts may lower the property tax of eligible disabled homeowners by providing a partial exemption for their legal residence. |
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What You'll Learn
Credit disability insurance vs. mortgage disability insurance
Credit disability insurance, also known as accident and health insurance, is an agreement between a borrower and an insurance company. If the borrower becomes ill or injured and cannot work, the insurance company covers the loan payments under the terms set out in the agreement. This insurance can be purchased through a lender when taking out a loan, and the cost of the policy may be added to the principal amount of the loan. It is important to note that credit disability insurance may not cover mortgage payments.
On the other hand, mortgage disability insurance is a type of mortgage protection insurance (MPI) that guarantees the policyholder's ability to make mortgage payments if they become unable to work due to illness or injury. This type of insurance is typically offered by lenders, but it is not mandatory to purchase it from them. Mortgage disability insurance has some drawbacks, including limited coverage that only applies to mortgage payments, diminishing value as the coverage decreases with loan repayment, and the lender being the beneficiary of the policy.
One key difference between credit disability insurance and mortgage disability insurance is the scope of coverage. Credit disability insurance covers loan payments in the event of disability, but it may not include mortgage payments. In contrast, mortgage disability insurance specifically covers mortgage payments if the policyholder becomes unable to work.
Another distinction lies in the beneficiary of the policy. With credit disability insurance, the borrower is the beneficiary, receiving the benefit of continued loan payment coverage in the event of disability. On the other hand, with mortgage disability insurance, the lender is the beneficiary as they receive the mortgage payments directly.
Additionally, credit disability insurance is often purchased through the lender when taking out a loan, whereas mortgage disability insurance may be offered by the lender but is not mandatory to acquire from them. It is recommended to consider regular disability insurance over mortgage disability insurance due to the limitations in coverage and the beneficiary being the lender rather than the policyholder.
In summary, while both credit disability insurance and mortgage disability insurance provide financial protection in the event of disability, they differ in their scope of coverage, beneficiary, and recommended usage. Credit disability insurance covers loan payments but may not include mortgages, with the borrower as the beneficiary. On the other hand, mortgage disability insurance specifically covers mortgage payments, with the lender as the beneficiary. It is generally advised to opt for regular disability insurance over mortgage disability insurance due to its broader coverage and direct benefit to the policyholder.
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How to claim credit disability insurance in NY
Credit disability insurance, also known as accident and health insurance, is an agreement between a borrower and an insurance company. If the borrower becomes ill or injured and unable to work, the insurance company covers the loan payments as per the terms of the agreement. This insurance can be purchased through a lender when taking out a loan.
To claim credit disability insurance in New York, follow these steps:
Step 1: Understand the Requirements
Before filing a claim, ensure you meet the eligibility criteria for disability benefits. New York requires employers to provide disability benefits coverage for off-the-job injuries or illnesses. To be eligible, your disability must prevent you from performing work, and you should not be receiving wages or profit from any other type of work.
Step 2: File a Claim with the Appropriate Entity
The process for filing a claim depends on your work status when the disability occurs. If you are employed, file your claim with your employer or their insurance carrier. If you have been unemployed for less than four weeks, file with your previous employer's disability benefits insurance carrier. If you have been unemployed for more than four weeks and are collecting unemployment insurance benefits, follow the instructions provided by the New York State Workers' Compensation Board to submit your claim with the NYS Special Fund for Disability Benefits.
Step 3: Complete the Necessary Forms
You will need to complete specific forms to initiate the claim process. Obtain and fill out Form DB-450, the Notice and Proof of Claim for Disability Benefits. This form can be obtained from your employer, their insurance carrier, your healthcare provider, or a Board office. If your disability results from a motor vehicle accident or the negligence of a third party, you must also complete Form DB-450.1, the Claimant's Statement Regarding No Fault or Personal Injury.
Additionally, ensure that your healthcare provider completes their section of the form, indicating the estimated date you may return to work. Your employer will also need to complete Part C of the form, providing necessary information for claim processing.
Step 4: Submit the Claim within the Specified Timeframe
Submit your completed claim form within 30 days of becoming disabled. Send the form to your employer or insurance carrier, or, if applicable, to the NYS Special Fund for Disability Benefits.
Step 5: Follow Up on Your Claim
If your claim is rejected or not paid, you will receive a Notice of Rejection within 45 days of its receipt. You can request a review of your claim by completing the reverse side of the Notice of Rejection and mailing it to the Workers' Compensation Board Disability Benefits Bureau at the provided address. If necessary, the Board will obtain further information and may hold a hearing on your claim.
By following these steps, you can initiate and navigate the process of claiming credit disability insurance in New York, ensuring that you receive the benefits you are entitled to during a challenging time.
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Private mortgage insurance (PMI)
The cost of PMI varies depending on factors such as the loan amount, down payment size, type of mortgage (fixed or adjustable-rate), and the borrower's credit score. Those with a lower credit score can expect to pay a higher percentage of the loan amount for PMI. It's worth noting that PMI can be paid through different methods, including a one-time upfront premium paid at closing, or a combination of upfront and monthly premiums.
While PMI can help borrowers qualify for loans they might not otherwise obtain, it does increase the overall cost of the loan. Additionally, it's important to remember that PMI does not protect borrowers from foreclosure if they fall behind on mortgage payments.
Federal law dictates that lenders must automatically cancel PMI when the loan-to-value (LTV) ratio drops to 78%, or when the borrower passes the midpoint of their loan term. To avoid paying PMI altogether, borrowers may consider saving for a 20% down payment or seeking more affordable properties that align better with their budget.
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Mortgage insurance premium (MIP)
MIP can be paid upfront or periodically. The upfront mortgage insurance premium is due at closing and amounts to 1.75% of the total loan amount. Lenders must submit this payment within 10 calendar days of the mortgage closing or the disbursement date, whichever is later. The periodic mortgage insurance premium is paid monthly, with the annual premium divided by 12 months and added to the principal payment. Other charges included in the monthly fee may encompass escrow amounts for property taxes and homeowner's insurance coverage.
For FHA loans originated between December 31, 2000, and June 3, 2013, borrowers who have paid off at least 78% of the loan-to-value amount may request the lender to cancel the MIP. However, for loans originated after June 3, 2013, if the down payment was less than 10% of the home's value, the MIP must be paid for the entire duration of the loan. The only way to remove MIP on an FHA loan is to refinance it into a non-FHA product.
Until the 2017 Tax Cuts and Jobs Act, MIP was deductible in addition to allowable mortgage interest. The tax deductibility of MIP was reinstated for 2018, 2019, and 2020 by the Further Consolidated Appropriations Act of 2020. However, this Act has since expired, and mortgage insurance premiums are no longer deductible.
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Exemption for persons with disabilities and limited incomes
In New York, the exemption for persons with disabilities and limited incomes provides a reduction of up to 50% in the assessed value of the residence of eligible disabled individuals. This applies to school, county, and town taxes, but not special district taxes.
To qualify, applicants must meet certain income limitations and have a documented physical or mental impairment that significantly limits their ability to engage in one or more major life activities. The income limit varies by municipality, ranging from as low as $3,000 to as high as $50,000. Some localities offer a sliding scale exemption of less than 50% for individuals with incomes above $50,000, with a 5% exemption for those earning below $58,400.
The exemption is available to those who own the property or are a tenant with a lease that grants them a life interest in the property as long as they remain in residence. The property must be the legal residence of the disabled person(s) and be used exclusively for residential purposes. If the owner is an inpatient in a residential healthcare facility, their income is not considered in determining exemption eligibility.
To apply for the exemption, individuals must submit proof of income and documentation of their disability. This may include an award letter from the Social Security Administration, Railroad Retirement Board, State Commission for the Blind and Visually Handicapped, United States Postal Service, or United States Department of Veterans Affairs. The application must be filed in the local assessor's office by the appropriate taxable status date, which varies by county.
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Frequently asked questions
Credit disability insurance is an optional agreement between the borrower and an insurance company. If you have a credit disability policy and become injured or ill and are unable to work, the insurance company will make payments on the loan as per the terms set out in the agreement.
Credit disability insurance pays off all or part of a loan that you take out if you’re disabled and can’t work, but not necessarily your mortgage. Mortgage disability insurance, on the other hand, only covers mortgage payments.
Credit disability insurance offers more flexibility as it can be used for any expense, unlike mortgage disability insurance. Additionally, the coverage provided by mortgage disability insurance decreases as you pay off your home loan, while credit disability insurance does not have this drawback. Lastly, with mortgage disability insurance, the lender is the beneficiary, whereas with credit disability insurance, you are the beneficiary and receive the payments directly.
