Global Courant
Insurance is risk management. So you need to identify the risk to be covered for each type and the best way to do it. Mortgage life insurance, like other types of insurance, can be expensive, so you should understand that the inherent risk is the same as with a normal life insurance policy. Moreover, there are several ways to get it.
Financial institutions sell mortgage life insurance policies to protect them against potential loss upon the death of mortgage holders. Financial institutions, rather than family members or others you choose, benefit from these policies.
Let’s take a closer look at how mortgage life insurance can come about. If you borrowed $100,000 from a bank to buy a home, the bank would write its name on the title deed, becoming a co-owner up to the value of the loan. This is the typical mortgage.
If you die before you have repaid the mortgage, the bank has two options. It can sell the home and give your beneficiary the difference between the amount they received at the sale and the outstanding loan. Your beneficiary may also take over and repay the mortgage loan. To do the second, the bank must be familiar with the beneficiary’s finances after your death. The bank may accept the alternative if your life insurance policy and other assets provided enough income to pay the mortgage and give your dependents an acceptable income to live on.
Another way to deal with mortgage insurance when you get a mortgage is to insure your life for the full value of the mortgage. This would be an addition to the existing regular life insurance policies. However, this doesn’t look at your finances holistically, so I don’t think it’s the right choice. You may not need more insurance.
Mortgage life insurance sold by a financial institution can be expensive and have drawbacks. First, the insured amount decreases as the mortgage balance decreases over the life of the mortgage, but the premium does not decrease. Second, unlike term life insurance, the bank has the right to increase premiums. Third, it is not portable. If you switch your mortgage, you must therefore apply for a new life insurance policy with your new bank.
It is better to take a closer look at your financial affairs and, if necessary, take out additional term life insurance with an insurance company. You would own the policy. The financial institution would not do that. Your spouse or others you choose are the beneficiary, not the bank. And your spouse or dependent would have the option of taking over the mortgage, if that alternative was best for them.
As with all financial decisions, listen, hear and understand your alternatives, and let the Lord guide your decision.
(C) 2011, Michel A. Bell.
Mortgage Life Insurance – The Best Approach
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