Mortgage Life Insurance or Life Insurance, What Is best?
Mortgage Life Insurance or Life Insurance, What Is best
?We have heard it many times. You were just approved for a mortgage, and the lender or your fiends tell you that you should get mortgage insurance. So you call an agent or do a search online. You ask the agent about mortgage insurance and the response often is, yes we do have it! And we offer great rates on mortgage insurance. And mortgage insurance is probably best for you. And....
The question is, is there such a thing as mortgage life insurance? The answer is simply no! Mortgage life insurance and life insurance are really the same. Look at it this way, if you buy a "mortgage Life Insurance" policy and you die, what happens? A death benefit is paid out. If you buy life insurance and you die, what happens? Same! The bottom line really comes down to your needs and the final price of the policy (notice that I did not say the quote for the plan). In other words, if someone quotes you $25/month for a "mortgage life insurance plan", and you can get a comparable life insurance plan for less, then take the life insurance.
Some people feel that mortgage insurance is better because it gets paid to the lender. First of all, regular life insurance can also be paid to the lender. Second of all, in most cases, you would not want to do that. One main reason, is that, as of this writing, you mortgage interest is one of the few things you can deduct against your income and this potentially reduces your income tax liability. So, if you make the lender beneficiary, then the loan will get paid in full - all deductions are gone. If, on the other hand, you make a person (a spouse) the beneficiary, then he/she will have the option to either pay off the loan, if it is best, or just use the insurance proceeds to pay the monthly mortgage payments and thus retain the interest deductibility of the mortgage loan. Last but not least, a mortgage paid on time every month looks good on a credit report.
Now, to go back to the choice you have between life insurance and "mortgage insurance", choose the cheapest. By the way, we do not consider accident only life insurance an adequate policy to cover a mortgage liability. Choose a standard life insurance policy that covers you in case of death from accidents or natural causes.
What about the bank's "mortgage insurance plans"? Warning! Warning! Some people feel that they are all set because the bank sold them a mortgage insurance policy. Two things to watch out for. First is, Mortgage Insurance from the lender can come in two forms. The first one is PMI (private mortgage insurance), which has nothing to do with death and life insurance and the other one is a decreasing term mortgage life insurance certificate. First, lets talk about PMI. PMI, will not pay off your mortgage in case of your death. PMI only covers the lender for a portion of your debt in case you default on the loan. It is often a requirement if you put less than 20% down on your mortgage at time of application. In other words, if your loan is $100,000 and you only put down $8,000 (8% of the loan), the lender needs to cover the difference (12% or $12,000) with an insurance policy that will indemnify them in case of a loan default.
Now, bank's decreasing term mortgage insurance certificate is just OK! Yes, it should pay off your loan in case of death but here are some major issues. First of all, you have no choice in beneficiaries. The lender is the beneficiary and that is it. Second of all the policy is not yours. That is why it is called a certificate. In other words, if at some point the lender sells your loan to another lender (which happens often) and the new lender does not wish to continue the life insurance certificate, they can just cancel it. If you are still healthy, you may be OK and get an insurance policy somewhere else (although at older age rates) but if you are not healthy, you may not be able to get anything or you may have to pay very high premiums for a life insurance policy. Third of all,, the lender's life insurance policy often is a decreasing term policy (we have even seem accident only policies) and what that means is that as your mortgage loan goes down, so does your insurance coverage. Yet, you still pay the same premium and it is often high. Once again, if you need to cover a loan, just get a regular life insurance policy . It will be cheaper, it will offer level coverage and most likely will be convertible (convertibility is for another article).
As we always say in all of our articles, no matter what plan you decide to go with, always ask, ask and ask more questions. Be well. I Live Alone Do I Need Life Insurance? How To Take Care Of All Your Final Expenses With Burial Insurance For Seniors Life Insurance For Police Officers And Other Law Enforcement Individuals The Many Options Of No Medical Exam Life Insurance. What Is Best? Life Insurance You Can Borrow From What are the risks covered by a life insurance? Silk Scarves - Diverse Opinions In Both Trend And Everyday Life Viewpoints A Guide To Life Insurance By Age Top 10 Most Important Factors Affecting Your Life Insurance Rates Over 50 Life Insurance Plans Affordable term life insurance - What about a low cost term life insurance policy Affordable Life Insurance available! Use tax refund for your life insurance policy to pay every year