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Do you think mortgage insurance is the only way to protect your home?
Life Insurance may be a better option, and here’s why.
You sit with a mortgage loans officer in a lending institution. You’ve signed the mortgage papers, and now the lender asks: “Would you like mortgage insurance? That way, if you die, we’ll pay off your mortgage and your spouse or family won’t have to worry.”
Naturally, you are tempted to answer, “Where do I sign?” But wait! Before they put pen to paper, make sure they know the facts about the coverage you are considering. Chances are you’d do better to protect your mortgage with a personal life insurance policy.
Mortgage Insurance can limit your control - as well as value, flexibility and security.
The mortgage lender is the sole beneficiary of the proceeds - With mortgage insurance, the financial institution is the owner and beneficiary, and receives all the death benefit, and uses it to pay off the outstanding mortgage principal. With personal life insurance, you decide who the beneficiary will be. And this beneficiary (usually a spouse or family member) decides the best way to spend the tax-free death benefit. They can pay down the mortgage — or they may prefer to invest, cover living expenses or make important purchases instead of paying off a low-interest mortgage.
The mortgage insurance death benefit decreases over time – Mortgage insurance from a lender is “decreasing term insurance.” As you pay the principal, the amount you owe on the mortgage goes down – and so does the death benefit amount needed to pay off the remaining mortgage. But the mortgage insurance premiums stay the same, so with every payment your client actually gets less for their money. Not so with personal life insurance — a $100,000 face value will always be worth $100,000 as long as they make the premium payments.
Mortgage insurance premiums may not be as low as you think – While recent articles argue that mortgage insurance premiums are lower than those for personal life insurance, it’s not always so. Depending on your age and the policy’s face value, individual life insurance coverage may be cheaper. While mortgage insurance offers one set of rates, an individual life insurance policy may offer lower rates and more value to individuals with better health and a healthy lifestyle.
If your client changes mortgage lenders, they’ll need new mortgage insurance – Many homeowners change mortgage lenders while they’re paying off their home, especially if they can get a lower interest rate elsewhere. But if they remove their mortgage from one company, they generally lose their mortgage insurance too. They’ll have to apply again at the new company, and probably pay more because they’re older. If the mortgage is protected by an individual life insurance policy, you can transfer your mortgage to another company and the insurance remains in force. There’s no need to re-apply, and no risk of losing the insurance because of a change in age or health.
Mortgage insurance may be cancelled without warning - Mortgage insurance is group insurance – owned by the lender. You will be one of a group of people who have mortgage debt with the same lender. The lender may cancel this group policy at any time, and you will lose your coverage. With an individual life insurance policy, you are in control, because no one else can cancel or alter their policy.
Life Insurance keeps you in charge
Once again, here’s how you might benefit by protecting your mortgage with an individual life insurance policy instead of mortgage insurance.
- Your choose the beneficiary of the life insurance policy.
- This beneficiary decides how to spend the death benefit.
- The death benefit value stays the same over time.
- Life insurance premiums can be lower than mortgage insurance premiums, depending on age, health and policy face value.
- You can change mortgage lenders and keep the same insurance.
- No one can cancel the life insurance policy but the client.Take time to discuss mortgage insurance vs. personal life insurance with your agent.
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