When I purchased my new home, it was one of my proudest accomplishments. Shortly after I had moved in, all these letters started arriving in the mail. They read such things as
“complete and return”
“action needed urgently”
“protection for your home”
These letters looked official and as if my lender was trying to inform me of some mistake I had made. The letters contained information about me and my mortgage amount. After about the third letter, I realized they weren’t coming from my lender. It appeared to be a solicitation for Mortgage Protection Insurance, not from my bank, but from life insurance companies.
Little did I know that my mortgage transaction was all public information, and anybody had access to the information. Don’t worry the information that is public is not anything like your social security number or even date of birth. The only info available is your loan amount, lender, and address of your home. Still kind of scary that this is available.
Below I will go over the 4 reasons I decided to “86” the offers or throw them in the trash.
Mortgage Protection Insurance is NOT PMI
Mortgage protection insurance is not PMI (private mortgage insurance). PMI is designed to protect the lender when homeowners don’t have the full 20% down payment. It is basically insurance for the 20% down payment. PMI protects the lender, not your family.
Mortgage Protection Life Insurance Explained
Mortgage protection insurance is a term life insurance policy that is used to pay off your home in the event you passed away unexpectedly. While it makes since to have life insurance in-force to pay off your home, mortgage protection insurance isn’t the answer for most consurmers.
4 Reasons to Avoid Mortgage Protection Insurance
1. Decreasing Benefit
Mortgage protection insurance is a decreasing term life insurance policy. This means the death benefit decreases annually and usually correlates with the amount owed on your mortgage decreasing. Also, while the benefit is decreasing the premium remains the same, so essential you are paying the same for less.
2. It’s Pricey
Mortgage protection insurance can be pricey especially since the death benefit decreases each year and premiums remain level. A simple term life policy could save hundreds if not thousands over the lifetime of the policy.
3. Your Mortgage is not your only Financial Obligation
Only covering your mortgage in the event, you pass away, will not full protect your loved ones. Mortgage protection insurance is going to cover the remaining balance owed on your home. It will not cover expenses like:
- Funeral Expenses
- Income Replacement
- Other Loans, such as credit card or student loans
4. The Beneficiary is the Lender
If you have bought a life insurance policy in the past, then you probably remember naming your beneficiary. With mortgage protection insurance, that is not the case. The beneficiary of a mortgage protection insurance policy is the lender, not your loved ones. With the lender as the beneficiary this ensures the mortgage is paid off.
Which means your family will be stuck with the cost of the expenses listed above.
First off, it is very important to have some type of life insurance in place to pay off your mortgage if you were to pass unexpectantly. Your loved ones will have enough to deal with and having the peace of mind that the mortgage is taken care of is vital.
While mortgage protection insurance would not be my first recommendation, it does fit some consumers, especially if you have health problems or have had health problems.
But if you are healthy, you will be able to purchase a level term life insurance policy much cheaper and with a death benefit that doesn’t decrease. I hope this article helps you with any questions you had pertaining to mortgage protection insurance. If you have any questions please don’t hesitate to leave a comment or contact Pinner Financial Services, LLC.