The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Le Poisson on February 04, 2016, 09:40:36 PM
-
Our mortgage has a life insurance policy attached to it. We pay biweekly, and the mortgage ($705.00) has an insurance policy attached that automatically withdraws an additional $80 every two weeks.
Somehow it seems ludicrous to me that I am paying a voluntary 10% levy on my mortgage in a life insurance policy. I could cut YEARS off my mortgage by moving that $80 on to the principal instead of pissing it away.
According to RBC, this policy will:
1. - pays off or reduces your outstanding insured RBC Royal Bank mortgage(s) in the event of death (up to $750,000)
2. - pays your regular mortgage payment(s) in the event of a disability (up to $3,000 per month for a maximum of 24 months)
3- pays off or reduces your outstanding insured RBC Royal Bank mortgage(s) if you are diagnosed with a covered illness (up to $300,000)
4. - preserves your personal insurance
5. - safeguards your savings for what they were intended
Running down the list:
1. - if Momma keels over, I'd sell the house and buy a condo. No need for the policy. If i keel over, I'm not sure what Momma would do.
2. - Our mortgage is $1411 per month, that means the disability coverage is only good for $50,000. We have that in savings.
3. - Ok, thats good news, but see item 1.
4. - Ummmm. When we bought our 'other' life insurance, we got it to cover the cost of the house... Maybe I should take a closer look at that policy too.
5. - Yeeeaaaahhhh. About that.
So our mortgage right now is in the $330,000 range. I wonder if we could dump this policy and our 'other' life insurance policy and still have enough coverage.
-
So I just used the calculator on State Farm's website, and they can give us a $350,000 life insurance policy for less than half of what we have through the bank, and on a ten year term. I'm betting that with our family insurance broker we could do even better.
Is there any advantage to staying with the bank for this?
-
It has been a while since I looked at the terms, but as I recall the mortgage insurance had terrible conditions as well. We dropped ours in favour of life insurance long ago. I was also with RBC.
-
It has been a while since I looked at the terms, but as I recall the mortgage insurance had terrible conditions as well. We dropped ours in favour of life insurance long ago. I was also with RBC.
It gets worse... We are already carrying a $500,000 life insurance policy on each adult in the house. Plus a $177,000 work policy (may only cover us if we are injured/die while on duty - need to look into that.) Anyways, I think we can afford to drop this policy. Thats good news.
Now what to do with the cash - the age old question, invest or kill debt... No need to answer, I can read 847 other threads on that.
-
Mortgage insurance through Royal is a horrible thing. Parents of friends had it. Husband dies. Royal proceeds to tell them they weren't actually covered, due to a health condition they deemed made him uninsurable. (condition was very, very minor, and it never occurred to them it could, or would be an issue). Royal pays back the premiums, that's it. Wife is left with no money, has to sell the house, doesn't have enough equity to live on, and is partially supported now by her daughter. The parents thought they had done everything right, but in the end, were worse off than if they had no mortgage insurance.
Also, the time to get cheap term insurance is while you are young, and healthy. During the time you have mortgage insurance that may or may not cover you when needed, you might develop a health issue that makes you uninsurable with any company. I have a heart arrhythmia that showed up when I was 36. Not a big deal, and is controlled by medication. Luckily, I had a small life insurance policy before then, because it's the only one I will ever have. No company now will touch me, even the one I am already with.
-
Also, you continue to pay the same premiums while the mortgage balance drops.