Part of my job is explaining to clients the advantages and disadvantages of Mortgage Insurance versus Life Insurance coverage, as a means of maintaining their financial commitments in the event of death. Colleague Jeff Gordon of Freedom 55 has graciously provided me his perspective. Enjoy the read.
You’ve worked hard to find just the right home. Shouldn’t you take the time to find just the right mortgage life insurance
protection for you and your family?
Most lending institutions offer mortgage life insurance as part of their mortgage packaging.
But, look carefully before you sign on the dotted line. You could find yourself locked into insurance that does more to protect your lender than it does to protect you.
A personal life insurance policy doesn’t insure your mortgage – it insures you. After all, you’re the one making the mortgage payments. Through a personal life insurance policy, you can plan to meet more of your family’s needs in the event of death, including living in your dream home.
Here’s a closer look at how a personal life insurance policy compares to mortgage life insurance offered by most lending institutions.
It’s about being covered
Generally, most lending institutions offer nonconvertible term insurance; with no cash values, no premium flexibility or ability to move to a permanent life insurance plan if your needs change. With personally owned life insurance, you select the plan that meets your financial security goals. Most personally owned term life insurance products are fully convertible to permanent plans; if your health changes and you find it difficult to get life insurance, you can keep the full death benefit and convert your insurance to any permanent plan without having to re-qualify medically.
Mortgage life insurance offered by most lending institutions usually covers the exact amount of your mortgage. This means your coverage decreases as you pay down your mortgage. When the mortgage is paid off, you are left with no coverage. With personally owned life insurance, your financial security advisor will help you determine the amount of coverage you need and your coverage doesn’t decrease as you pay down your mortgage.
Additional funds could be available at a time when your family may need it the most. You have the flexibility to reduce the face amount when you want. Or, if you need the protection for other purposes, you can keep the insurance.
It’s about being in control
With mortgage life insurance your lender owns the policy and if you find a better mortgage ate at another lending institution, you may have to re-qualify medically for the life insurance protection. Your mortgage life insurance cannot be moved to another institution. Your lender also pays off the mortgage automatically if you die. Your beneficiary has no choice in how to use the funds, at a time when funds may be required more urgently somewhere else.
With personally owned insurance, you own the policy, not your lender. You have the freedom to switch your mortgage to another lending institution without jeopardizing your life insurance coverage. Your beneficiaries can choose how to use the funds – to pay off the mortgage, provide a monthly income or take care of a more immediate need.
It’s their choice, not your lender’s.
A personal life insurance policy doesn’t insure your mortgage – it insures you.
To discuss your insurance, call Jeff Gordon with Freedom 55 Financial at 519-435-6381.
Bruce,
Interesting article by your LONDON LIFE agent. Generally his view is correct, but misses promoting the hard reality by promoting permanent insurance (with high commissions).
Fact: Personally owned life insurance allows you the homeowner to decide the type and rate of insurance. Generally lender provided coverage is “decreasing term” where the coverage decreases with the principle amount of the mortgage. Add a second mortgage, a credit line, or even re-finance and you end up re-applying for life insurance. Job or health risks, plus increased age could effect your cost of coverage or even prevent coverage. (I often suggest level term coverage equal to purchase value plus 1.5 years income, to age 65, 70 or 100). You could apply for level coverage, decreasing coverage or a blended of types. Premium terms can be based on 1, 5, 10. fixed to an age, variable to an age. Remember premiums are age based (as well as job and health), hence a 1 year premium term will start as the least expensive but adjust every year. 5 year is a bit more cost but does not adjust until the end of 5 years (usually renewed for 5 more). Similarly with 10yr and so on. Generally you can shop around for the best rate and the best product for your needs. Independent coverage can be blended with other products, such as accidental death benefit, disability premium coverage, disability income coverage, investment add-ons, etc. Should death occur your beneficiary has the choice of paying off the mortgage balance, or investing the benefit to offset the mortgage, or a combination of strategies. Commissions are paid to the agent, who can act as a source of professional information, personally linked with you for the duration. Lender coverage pays the lender a commission without the advantage of a personal contact for the duration.
In my opinion, with independent coverage you can get a lot better value for your premium dollar – PROVIDED you connect with an agent who cares about you and your budget more than his commissions and sales record.
Ron