Do you really need Mortgage Life Insurance?
Should you say ‘No’ to your banks mortgage insurance
Before you sign on the dotted line to purchase Mortgage insurance, think twice!
While on the surface buying mortgage insurance appears to be a sound decision to protect your loved ones from losing their home in case of death. This may not be financially the ideal way to go if you are really serious about protecting your family and at the same time looking after your financial well being.
In my humble opinion ‘Mortgage Life Insurance’ is a waste of money.
Banks may talk you into getting this insurance, usually not because they are concerned about your well being but to ensure they get their money.
Consider the following:
√ While you pay the premium for your mortgage life insurance, the bank is the beneficiary under this policy. In case of death the bank gets paid.
√ Another factor is the actual insured amount. Suppose your initial mortgage insurance is for $300,000 and you are paying a premium of say $100 per month. Even though over the years the original mortgage amount will gradually decline, your monthly premium will stay the same.
Using the $300,000 mortgage policy example, suppose at the time of death the mortgage amount balance was $100,000 then the amount paid would be $100,000 and not the $300,000 which was the original mortgage insurance value.
√ Mortgage insurance premiums, as is it with most types of insurance are set by taking into consideration your age and medical condition. Suppose after five years you want to move your mortgage to another company, you will have to prequalify yourself again for mortgage insurance coverage and incase your health status has changed due to a diagnosed illness, your premiums will increase. In the unfortunate event you suffer a heart attack there is the possibility you may even be denied coverage.
So what is the most appropriate option for people who want some protection for their loved ones in case of death.
LIFE INSURANCE is the best alternative when it comes to value for your insurance dollar. However life insurance policies have higher premiums and hence those considering mortgage life insurance do not take this route. The best option for those thinking of getting mortgage life insurance to protect their families is to get TERM INSURANCE.
TERM INSURANCE
Term Insurance is also like a life insurance policy for a fixed term. This type of policy is not tied in with your mortgage. The policy holder owns this type of insurance policy and you specify who the beneficiary is on the policy in case of your death. This policy usually works out to be even cheaper than mortgage life insurance and has other benefits.
Term Insurance or Mortgage Insurance
Advantages of term life insurance compared to mortgage insurance
Term life policy is owned by you the policy holder. As it is not tied with your mortgage you can change mortgage lenders with having to worry about applying again for mortgage life insurance.
Term policies do not decline over time and the value remains the same throughout the term. A $300,000 term policy for example will pay $300,000 in case of death while the policy is in force.
In case of death, the money goes directly to your beneficiary and not to the bank. Your family can then decide how to use the money. They may even decide NOT to pay off the mortgage and use the money according to their own wishes.
With mortgage life insurance, in case of your death the mortgage is paid off but your family receives no money. In case of your death your family may need to immediately replace your income for various reasons. Term insurance would pay them the cash value and it would be up to them how they use the money.
As term insurance is cheaper people usually insure for a higher amount. I would say $500,000 to a million dollars is not uncommon. Term insurance as with other insurance policies takes age and medical condition into account.
Those of you, who don’t have a house to worry about mortgage life insurance yet, should still consider Term life insurance for yourself and plan for their future. Remember the less your age the cheaper the insurance premium. You will be surprised at the low cost of term life insurance for younger applicants. Before you jump to any conclusions, I don’t sell insurance and suggest you shop around for the best deal.
There are several companies offering Term Insurance at competitive rates. While life insurance policies are generally sold by insurance agents. Term life insurance is usually sold online. You can comparison shop for term insurance rates from the comfort of your home and compare them with the rates your bank may be offering you for mortgage life insurance. Chances are thatyou will be pleasantly surprised to find that Term life insurance ischeaper than the mortgage life insurance offered by your bank.
I just did some checking online to give readers an idea of term insurance rates and found that term insurance premium for an insured amount of $500,000 for a 30 year term for a 25 year old male in good health is available for only about $38 permonth. For a 40 year old the premium jumps to approximately $68 per month.
Your monthly insurance premium of course will depend on your own age, medical condition, amount of the insurance and the length of the term you choose. So to find the best rate you will have to do some comparison shopping online yourself so as to get the best premium rate and policy that will match your needs.
- informedbuying.net -