Have you ever received one of those letters promoting mortgage protection policy? You know the ones that look like they come from the bank, but you are just not sure what they are all about. The problem is these letters or offers often leave you with a lot of unreciprocated questions. Who sent this letter and how did they get my information? Are they affiliated with my Bank? Do I really need Mortgage Protection Insurance Policy? How much does it cost, and is it really a good idea?
Point to be Considered:-
First of all where did this letter come from? Well, that depends. Sometimes a bank or lending institution may have given your name out to a third party insurance company that offers mortgage insurance and has some affiliation with the bank. On the other hand, it might just be a local insurance agent who is trying to generate business. The affiliated insurance company obviously got your information from the bank, they are affiliated with but the insurance agent may have just got your information from the county clerk. You see, mortgages are a affair of public record and anyone with some time on their hands and a little know how can go downwards to the county courthouse and look up information regarding your mortgage. For some of you this may make you a bit concerned but it is perfectly legal.
Do You Really Need Mortgage Protection Insurance?
So that is how those letters end up at your door, but the more important question is what is mortgage protection insurance and do you really need it? Mortgage Protection insurance is just what it sounds like. It is an insurance policy designed to protect your family in the event that you are not around to pay your mortgage for them. The plan might be set up to pay off the loan if you die or if you become disabled. But to answer the question do you need it depends on a lot of other factors. Do you have dependents that are counting on you to pay the mortgage every month? If you became sick or injured and unable to work, how long could you pay the mortgage without your current income coming in? Do you have other life insurance or disability insurance in place? If so, is it really going to be enough now that you have taken on more obligations? When was the last time you had a professional evaluate your insurance needs? All of these questions should be taken into consideration before you make a decision regarding Mortgage Protection Insurance.
A Comprehensive Review:-
After considering all of these questions you still may be trying to figure out if mortgage protection insurance is a good deal for you or not. Again the answer is, it depends, and there are many things about mortgage protection insurance that you may not be aware of. Here are just a few examples.
- If something looks too good to be true it usually is. For example many of the plans that are sent out from bank affiliates are very inexpensive so they may seem to be quite attractive however you need to read the fine print or find an advisor that can help you. The catch on these plans usually is that they will only pay off if your death or disability is the result of an accident. What happens if you purchase one of these plans and you have a health concern like, cancer, heart attack or stroke? They won’t pay dime one, that’s what happens! So be careful that you know what it is that you are buying. Especially, if it is being traded through the postal service and looks too cheesy to be genuine. Accident plans only pay if you die in an accident, period.
- One other problem with the bank sponsored plans is that most of them are set up with diminishing benefits. In other words your insurance benefit will decrease as your loan decreases. For example if you start out with a $100,000 mortgage and you pay on it for 15 years and now you only owe $72,000 your insurance contract’s death benefit will also drop to $72,000. At first this might not seem like a problem and it’s really not. But what if you could instead have a level benefit for the same price? For example what if you could have a $100,000 death benefit no matter how much you owed on the house and it didn’t cost you anymore to do it that way? Wouldn’t that be a better deal? Well that deal dose exists so you may want to be careful before you sign up for the first plan you see.
- Another thing that you may want to look out for is that with almost all of the banks plans they are non-transferable. This means that if you change banks, or you refinance, or even if you just sell your home you now have to get a brand new mortgage insurance plan because the bank’s plan doesn’t carry over. What if your health changes and you don’t qualify? What if your new bank doesn’t offer mortgage protection (not all banks do)? What if a few years have gone by and now you are older and the costs have increased due to your age? If any of these things happen than you would have been better off buying a plan that was transferable from one mortgage to the next. Theses transferable plans are often not available through the bank but must be purchased through an independent insurance broker.
Group Plans or Group Benefits:-
The last thing you need to be aware of is that many mortgage protection plans are offered as a group benefit. Just like the term life insurance that you get from your employer. Group plans are offered to a group of people with the same set of circumstances and because of this they are easier to qualify for. This can work to your advantage or your disadvantage depending on your circumstances. For example, if you are not so healthy and you already have a health problem like diabetes, you will most likely get a very favorable rate if you purchase a plan as part of a group because the health risks are spread out amount the entire group and you are not left to bear the full cost of your illness alone. However, if you are in excellent health and are not overweight and you don’t take any prescription medication then you may be better off not being lumped in with a group of people that may be less healthy than you. If you are willing to subject yourself to an easy medical exam in the comfort of your own home or office, than you may just qualify for a much cheaper rate.
These are just some of the things you should take into account when considering mortgage protection insurance. But the most important thing to consider is will mortgage protection insurance by itself really protects you and your family? Even if you leave your home paid off for your loved ones will they really be able to afford to live in it without your income? Leaving your home free and clear of the ones you love, is certainly a noble idea and a commendable one, but have you really thought about what they would do to survive financially in that house without you to take care of them? If you really want to protect yourself, your home, and your family than perhaps you should consider talking to an advisor that can help custom tailor a plan to meet your exact needs. Is mortgage insurance a good idea for you? The only answer any qualified advisor can give without looking at your particular circumstances is, it depends. At this point one of the smartest things you can do is talk with a Registered Financial Consultant to determine exactly what you and your family need so you can make an educated buying decision.