Author Topic: Mortgage Insurance, or "No Thanks, I'll take the old option"  (Read 6612 times)

Matt K

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Mortgage Insurance, or "No Thanks, I'll take the old option"
« on: February 29, 2012, 11:04:32 AM »
Chances are, if you have recently purchased a home (or are planning on it), a mortgage was (or will be) involved. If this doesn't apply to you - congratualtions. This is for the rest of us.

When you signed (or will sign) for your mortgage, almost certainly you were offered Mortgage Insurance. Mortgage Insurance is a very specific form of Life Insurance. If you die, your remaining mortgage is paid off and your dependants won't be out of a home (or trying desperately to cover mortgage payments without your financial support). This sounds like a very reasonable idea, and when the banker tries to sell it to you, she isn't being greedy and looking for a commission. There is a very real chance she's had to do the unthinkable and call in a mortgage on some family already reeling from a tragedy. Honestly, she's a good person looking out for you. But that doesn't mean that her product is right for you.

Let's look at that definition again: "... your remaining mortgage is paid off."
So if I die one year after buying my house, my widow gets (roughly) $300k. If I die ten years into home ownership, my widow gets $200k (or however much we have left). Notice that the payout decreases the longer I pay into the insurance.

There is a better way. It's called good old fashioned Life Insurance (or maybe Term Life Insurance). Here you pay for a set payout. In our case, we are insured for $200k. I am insured through work for an additional $100k, so if I die, my widow has the mortgage paid off, and if she dies, my income will let me continue to make payments on the remaining mortgage without her support. This $200k (or whatever you chose) is paid out no matter the length into the mortgage. Mortgage almost paid off? Good, then the insurance money can go to investments for your widow's retirement or your children's educations.

There's a second benefit to regular old life insurance too - lower cost. We were paying roughly $50/month for the Mortgage Insurance that we signed up for when we bought our house. Through the same bank, we'd save about $10/month for regular old life insurance. Through the group life insurance offered to my union, we pay one third of that.

Check with your local insurance providers. Many banks and brokers also offer group discounts to unions, university almuni, or members of professional associations (such as professional engineers). There is a lot of money to be saved by doing a little bit of leg work.

We will be saving more than $30 per month, and have better long term coverage. I felt that was worth sharing.
« Last Edit: February 29, 2012, 11:07:06 AM by Matt K »

arebelspy

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Re: Mortgage Insurance, or "No Thanks, I'll take the old option"
« Reply #1 on: February 29, 2012, 09:37:09 PM »
I agree.  Often when you purchase a house, because it's a matter of public record, you'll get bombarded with offers like this.  I've gotten - literally - dozens, after purchasing a few homes within a short period of time.

Review your insurances (car, house, life, etc.) once/yr, and if you think you need to up your life, you can, but these mortgage insurance ones aren't worth it, IMO.

Thanks for the reminder, Matt K.
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Dollar D

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Re: Mortgage Insurance, or "No Thanks, I'll take the old option"
« Reply #2 on: March 01, 2012, 09:29:12 AM »
I love how they package up these offers with phony letterhead and important looking envelopes to make it looks like some kind of official notice from your bank or something. No Thanks!

velocistar237

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Re: Mortgage Insurance, or "No Thanks, I'll take the old option"
« Reply #3 on: March 01, 2012, 09:43:22 AM »
I love how they package up these offers with phony letterhead and important looking envelopes to make it looks like some kind of official notice from your bank or something. No Thanks!

My bank sent us a helpful warning note saying, "They are not us!" We got a second round after we refinanced.

There was also a "utility insurance" company that sent out notices looking like the city's water bill. It made the city council pretty mad.

Matt K

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Re: Mortgage Insurance, or "No Thanks, I'll take the old option"
« Reply #4 on: March 01, 2012, 10:39:43 AM »
The mortgage insurance we purchased initially was through the bank we got our mortgage with. It didn't come in the mail, there was no scare tactic or false pretense. It was a very simple and very reasonable sell made by the mortgage agent. In our financial situation, if either of us died, the other would be very hard pressed to keep the house. We are young (ish) without kids, and this was really the first time in ours lives Life Insurance was something more than a old greyhaird man on TV talking about providing for his grandkids.

And I really do believe the mortgage agent had our best interests at heart.

velocistar237

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Re: Mortgage Insurance, or "No Thanks, I'll take the old option"
« Reply #5 on: March 01, 2012, 01:35:16 PM »
And I really do believe the mortgage agent had our best interests at heart.

I believe you, but it makes me wonder whether your agent didn't know that it wasn't a very good deal. I guess it's just something else to add to the list of advice to give friends who are buying a house. Thanks for the advice.

ultrarunner

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Re: Mortgage Insurance, or "No Thanks, I'll take the old option"
« Reply #6 on: March 01, 2012, 03:46:08 PM »
If my wife and I die, the bank can have the house back.  :-)

Matt K

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Re: Mortgage Insurance, or "No Thanks, I'll take the old option"
« Reply #7 on: March 01, 2012, 04:07:04 PM »
If my wife and I die, the bank can have the house back.  :-)

Screw that, if we both die my dog gets the house/backyard!