Chapter 1 – Mortgage Insurance vs. Life Insurance
Talking about ones own demise is never easy or fun, but it is essential. When protecting your family from unexpected loss the mortgage can take the center stage. You can’t have loved ones wondering if they can afford the family house or not. Life and mortgage insurance seem similar, but when you dig deeper they show their true colors.
Lets ask some questions and see how they both stack up.
So the bank says I can get some insurance added onto the cost of my mortgage, it can protect my family, and it’s simple to get! Well, should I get it?
Mortgage insurance is that simple, but they leave out some serious details for you to figure out on your own. Mortgage insurance, often called creditors insurance, is a 5 minute way to get insurance on your life that will pay off your mortgage. Sounds good right? Lets dig deeper.
Mortgage insurance requires no medical exam. The insurance is post approved, meaning they will dive into your medical history after you pass away, and then decide if they pay. Even though you pay premiums every month it does not mean you are covered. Nothing is guaranteed.
With real Life Insurance they are much more upfront and clear. You will receive a medical exam and they will review your medical history beforehand to determine what risk you pose to them. Once the risk is determined, and a contract signed, you are covered and guaranteed to be paid out upon death.
Well that sounds good, but how about cost?
Mortgage insurance may be cheaper at first but in the long run real Life Insurance is the best choice. With mortgage insurance you must renew it every time your mortgage term is up. Assuming you use 5 year terms, every 5 years you have to renew your insurance policy. You will be 5 years older and therefore more expensive. You could have contracted a serious illness in that time frame, again more expensive (or completely uninsurable). Another item to point out is that if you are a non smoker, you will pay the same as a smoker with mortgage insurance. Real Life Insurance treats non smokers favorably, making their premium payments lower right off the bat.
Wait, but shouldn’t the price go down along with a declining mortgage balance?
That would be logical, but sadly, not how it works. Mortgage insurance costs increase with your age and illnesses that you may collect along the way, all while you are paying your mortgage down year after year. You end up paying more every term, for less coverage!
Real Life Insurance will never increase during the contract. It will be a level cost that is known and agreed upon. The coverage stays whole throughout. If you are paying for $800,000 in coverage, your loved ones will actually get the full amount upon your passing, no matter what the mortgage balance.