You’ve just bought a house. You’re now hundreds of thousands of dollars in debt. For one of the first times in your life you might be thinking that if you died your family would have a lot more to worry about than just missing you. You don’t want to be a burden to your partner and children. You want them to be okay when you’re gone, to be able to carry on, but not with all this debt firmly planted on your partners’ shoulders. So you buy mortgage insurance, right? Your bank told you to. Your real estate agent told you to. It’s the best choice, isn’t it?
Not necessarily.
Life insurance Put Simply:
When you purchase life insurance you choose a face amount, like $500,000, to cover your mortgage and other debts that you would like paid out on your death. You go through medical underwriting to determine the cost of your premium. The premium depends on your face amount and your health. If you are in poor health you will more likely pay a higher premium as the healthier you are, the longer you are likely to live and therefore, are more likely to pay insurance premiums longer. If you purchase permanent insurance the insurance will be in force until you pass away, at which point the face amount will be paid out in full, so long as you have not loaned against the face amount, died of suspicious causes, or lied in your medical underwriting.
Mortgage insurance Put Simply:
When purchasing mortgage insurance your face amount is the value of your home. Your premium is determined by the type of mortgage you applied for and the amount of money you’ve put down. If you are to die before your home is paid off the money from your mortgage insurance goes directly to the bank. Once your home is paid off your mortgage insurance expires.
The Numbers for Mortgage Insurance Don’t Add Up
Mortgage insurance sounds nice and simple right? No medical tests, no judgement on your smoking status, and it’s all at your bank in one convenient place, right?
Well simple doesn’t necessarily mean in your best interest.
To begin with, you pay the same premium for the life of your mortgage while the payout continues to decrease. Let’s assume you have pay $100 a month for mortgage insurance on your $300,000 home. Your premium will stay $100 until your mortgage is paid off. Even if you’re in the last year of your mortgage and only owe a few thousand dollars on your mortgage, your premium will remain $100. If you die, the remainder of your measly mortgage is paid out and you’ve continued paying the premium you paid when your full mortgage would have been paid out.
With life insurance, depending on the type of insurance, you can pay the same premium for the life of the policy and receive the full death benefit. So, whether you die in year 1 or 10 years after your mortgage has been paid off, you get your full $500,000 of insurance.
You Deserve to Choose your Beneficiary
With mortgage insurance your beneficiary is the bank. Whatever you owe, that is paid to the bank directly. It seems like a nice thought, to have passed away and immediately your house is paid off but consider this: if you pass away with life insurance, the beneficiary of your choosing is paid the full death benefit. So, if you owe $200,000 on your house at this point and your beneficiary receives your life insurance payout of $500,000 then your beneficiary can pay off your home and have the remainder of the death benefit for other costs. Once you die and your mortgage insurance is paid out that’s all you get whether you had a large sum of your mortgage left or not.
Life Insurance is for Life
Finally, mortgage insurance must change with each home you go to. Every time you move you’ve got to take out new mortgage insurance. Life insurance is not tied to your home. Where ever you go, it comes with you. No need to reapply, just keep paying your premium.
There are many different life insurance policies out there as well. Some companies offer a 20 pay option to pay a higher premium for 20 years and then your premiums are paid for life. No more payments and then you’re covered until you die. You can also explore cheaper options like a Term 20 which have cheaper premiums for the first 20 years of your policy and then increase for the next 20 year period. At 20 years you could cancel the insurance if you feel you have no need for it, or explore converting the insurance to permanent insurance. The options with life insurance are far more varied and customizable than with mortgage insurance.
While there may be reasons why mortgage insurance may suit a person’s specific needs at the time, we at Davlyn firmly stand behind life insurance. Life insurance is on your terms. You choose the face amount, you choose the beneficiary, and you choose to provide your loved ones with all they’ll need once you pass away. You and your loved ones deserve that choice.
Talk to our advisors about life insurance today.
