Mortgage insurance vs life insurance?

[Birdie dog]

My husband has decided to retire early and I'm admittedly not thrilled about it. When his retirement starts, his life insurance (bought through his state job) ends. We still have 8 years left on our mortgage. Although I make enough money that if something happened, I could afford the house, it would be all of my extra money and I'm not ok with that. So, I've told him he needs to get a policy that will pay off the mortgage should something happen to him. We've started making calls but I'm wondering if mortgage insurance VS life insurance has any major differences or if one would be better than the other in this case. Thanks for any info.

 

[Shelly F - Ohio]

Remember mortgage insurance will cover the mortgage only. What about you. You will get no money if he dies. You should do life insurance that would be enough to cover the mortgage and put some money in your pocket.

 

[ParklandDISDad]

My husband has decided to retire early and I'm admittedly not thrilled about it. When his retirement starts, his life insurance (bought through his state job) ends. We still have 8 years left on our mortgage. Although I make enough money that if something happened, I could afford the house, it would be all of my extra money and I'm not ok with that. So, I've told him he needs to get a policy that will pay off the mortgage should something happen to him. We've started making calls but I'm wondering if mortgage insurance VS life insurance has any major differences or if one would be better than the other in this case. Thanks for any info.

Hey. So what you are looking for, should be comparing is mortgage life insurance/mortgage protection insurance versus life insurance. Mortgage insurance, again, not to be confused with mortgage life insurance/mortgage protection insurance, protects your lender, not you, by paying the lender a portion of the principal in the event you stop making mortgage payments. So you will still end up with shot credit and very likely still a foreclosure.. but the lender's losses will have been mitigated.

The mortgage life insurance is tied to your remaining mortgage amount and is more expensive than life insurance. There are benefits, such as guaranteed approval regardless of age or health with practically no underwriting, but another thing to consider is that mortgage life insurance policies often have more restrictive issues ages than term life insurance policy. Most carriers wont write to anyone over age 45, whereas the majority of term life insurance carriers have no issue writing 30 year policies up to age 55.. and plenty even well beyond that.. although premium will increase with age for obvious reasons.

Hope that helps.

 

[tvguy]

I'd tell your husband he needs to keep working until the mortgage is paid off. Sounds like he has the income to pay it off a lot sooner than 8 years.
I just don't think a mortgage is something you should carry into retirement.

 

[cedricandsophie]

Term life insurance is not all that expensive. You can often buy it for a fixed period of time, lIke 10 years, for a fixed price. My husband bought $1,000,000 of term insurance for a period of 10 years when he was age 60 for $2400 a year. He bought it because I retired at age 55 and my company paid coverage on his life ended. We didn’t renew at age 70 because it got Too expensive. you can do a lot of checking for coverage online now.

 

[QueenIsabella]

There's not enough information to give you valid advice. How old is he? Why does he want to retire now? Does he have a plan for retirement--what he's going to do with his time, how bills are going to get paid? If he's retiring early, is there a pension or retirement savings to carry you through until SS kicks in? Some expenses will go down, but some, like health care, will go up, and can be substantial. Does he plan to get some manner of employment after he officially retires? Can you pay the mortgage off early, or do you have retirement income that you can make mortgage payments from?

And the most important question is, why does he want to do this if the two of you aren't on the same page? You should be sitting down together, going over the plans for how you'll live during retirement--what will you live on? What will you do? Travel? Downsize? Are there health concerns that need to be addressed? If he has a pension, you should be looking at that carefully--can you opt for survivor benefits? If not, do you have a plan for how you will survive if he dies first?

 

[cvjw]

Do you have a financial advisor? They are very useful at making sure you can retire comfortably. They deal with all of the stuff you are unsure about everyday. Ours keeps up with our investments, pensions, possible social security, etc to make sure we can live like we want to in retirement.

 

[CGB]

My husband informed me last summer (2020) that he wanted to retire at 62 (which was Feb. this year). We had about 8 years left on our mortgage. We agreed that he would continue to work until Dec. 2021 to eliminate all of our debt, including the mortgage. I reconfigured our budget so that we have been living off a portion of my income; his income went completely to the mortgage. We are three payments away from our goal. It's taken discipline but wow! I wish we'd done it years ago. When his pensions start, it's going to feel like a payraise! know I didn't answer your question about insurance, but I wanted to share our approach to the same situation.

 

[tvguy]

My husband informed me last summer (2020) that he wanted to retire at 62 (which was Feb. this year). We had about 8 years left on our mortgage. We agreed that he would continue to work until Dec. 2021 to eliminate all of our debt, including the mortgage. I reconfigured our budget so that we have been living off a portion of my income; his income went completely to the mortgage. We are three payments away from our goal. It's taken discipline but wow! I wish we'd done it years ago. When his pensions start, it's going to feel like a payraise! know I didn't answer your question about insurance, but I wanted to share our approach to the same situation.

At age 64, it is amazing how financial advice and decisions made when I got married at age 24 have had such a dramatic impact on my retirement.
The equity in our home was our backup college savings fund in case we needed the money for our kids. Our oldest started College 5 years after we paid off the house. So for 5 years the house payment money went straight to the college fund. If we had taken money out, then the goal would have been to get that paid off before retirement. We were lucky, parent and student loans bridged the financial gap so we never had to tap into that, so our house had been paid off 21 years when we retired.

 

[Birdie dog]

More about us. My husband is 61, I'm 52. He'll be retiring with both a military and state pension. His contribution to the household bills will remain about the same after retirement and he's taken a "fun job" to give him some spending money, and get him out of my hair a few days a week. We have tricare. I make more money than he does and have set myself up well for retirement so I'm not too worried about my income. I would have been bitter though if all of my fun money went towards paying a mortgage if something happened and he left me with nothing. (My retirement has enough in it to pay off the house and leave him with hundreds of thousands of dollars before the insurance through my job). So, honestly, the biggest worry I had was the 8 years left on our mortgage, and a policy that would pay it off should something unexpected happen.

 

[ruadisneyfan2]

Keep in mind that with life insurance (assuming you mean term life insurance) your benefit remains constant throughout the term that you choose. Whereas mortgage insurance, the benefit continues to decrease as your mortgage balance decreases. Will you payments decrease as the benefit decreases? Something to think about. I would always prefer life insurance. Mortgage insurance sounds good if your young and just took out a 30 year mortgage. Hmm... even then I think I like the flexibility of life insurance. Does mortgage insurance follow the insured if one needs to sell/buy again? Private life insurance would.

 

[ruadisneyfan2]

OP, it's not for everyone but have you considered paying down your mortgage early? Since covid hit and we couldn't travel last year, I decided last summer to really start hammering on the mortgage. Last August (2020) it was just under $106,000. Every spare penny we have (almost) goes to the mortgage and it will be paid off by the end of this month. I'm borrowing from some non-retirement savings to knock out the last little bit but I will have that replenished by the end of the year. I just want it gone so badly. Dh is 63 and we really don't want a mortgage during retirement. He has no plans to retire very soon; he's already bored on the weekends if we don't have plans so he does some handyman jobs for our neighbors. He'd go crazy being home 7 days/week.

 

[ruadisneyfan2]

This is a great calculator for helping you see how much you'd save and how soon you could pay it off.
Extra Payment Mortgage Calculator for Time and Interest Savings (free-online-calculator-use.com)

 

[MrsPete]

My husband has decided to retire early and I'm admittedly not thrilled about it.

This is a big red flag. This is a major life decision, and the two of you need to come to an agreement.

I just don't think a mortgage is something you should carry into retirement.

I agree, but what really matters is that the OP and her husband need to come to an agreement.

There's not enough information to give you valid advice. How old is he? Why does he want to retire now? Does he have a plan for retirement--what he's going to do with his time, how bills are going to get paid? If he's retiring early, is there a pension or retirement savings to carry you through until SS kicks in? Some expenses will go down, but some, like health care, will go up, and can be substantial. Does he plan to get some manner of employment after he officially retires? Can you pay the mortgage off early, or do you have retirement income that you can make mortgage payments from?

Yes, I was going to ask the same thing. Other questions that play into this: Do you have children who you're still supporting? Do you have extended family that relies upon you in any way? Do you have any debt other than the mortgage? Have you calculated your potential budget in retirement?

At age 64, it is amazing how financial advice and decisions made when I got married at age 24 have had such a dramatic impact on my retirement.

Yes. I was also 24 when we got married, and I wasn't wise enough then to think ahead to retirement, but I am very thankful that my husband was. It didn't take him long to convert me to his way of thinking.
We say we were good for one another because he taught me the value of investing /using compound interest (instead of letting it use you), and I taught him to economize on day-to-day things like making homemade cleaning products and shopping at Aldi instead of Harris Teeter. Together we have it all covered.

 

[QueenIsabella]

You seem to be pretty well set-up, generally. Is there a possibility that you could pay off the mortgage before he retires? Maybe dip into savings, then both of you work towards replenishing it? That would be a huge weight off your back, and you seem like you both have a good handle on finances--I bet it would be easier and quicker than you might think.

Mostly, though, you two need to be on the same page. If he's planning an early retirement, and you're fretting about the mortgage getting paid off, there's a disconnect. You need a plan that makes both of you comfortable.

 

[DLgal]

Do you absolutely need to keep living in that house for the rest of your life? If your husband passes away, couldn't you sell the house and downsize to a smaller place for just you? I would not personally spend money on any type of insurance in this situation. Just keep making your mortgage payments as you are and deal with the "what if" scenario only when it happens. Rather than spending money on an insurance policy, take that money and pay extra on the mortgage, or invest it so it can grow.

Having a mortgage in retirement isn't a huge deal. Plenty of people do it and are just fine. Both my parents and my MIL have mortgages in retirement and it isn't hampering them financially at all.

 

[tvguy]

Do you absolutely need to keep living in that house for the rest of your life? If your husband passes away, couldn't you sell the house and downsize to a smaller place for just you? I would not personally spend money on any type of insurance in this situation. Just keep making your mortgage payments as you are and deal with the "what if" scenario only when it happens. Rather than spending money on an insurance policy, take that money and pay extra on the mortgage, or invest it so it can grow.

Having a mortgage in retirement isn't a huge deal. Plenty of people do it and are just fine. Both my parents and my MIL have mortgages in retirement and it isn't hampering them financially at all.

Well, your reply really underscores the need for the OP to do some serious homework on options in the future, and that homework probably should be done now. Downsizing doesn't necessarily mean spending less. Just the Real Estate commission paid on a home sale could take a whole lot of years to recover. Not counting moving expenses.
And I guess every Financial Expert might have a little different perspective, but carrying a mortgage into retirement is one of things my brokerage advises against.
I know the 71 year old lady across the street has been in her house 42 years. Her husband passed away 5 years ago unexpectedly. He continually pulled equity out of the house to invest in materials for his bow making business so when he passed they owed $125,000 on a house they bought for $60,000. The gold and silver he used was easy to sell, but the bulk of his inventory was in wood to make bows and legally imported ivory. Things that are very valuable but take years to sell because of how much inventory he had, and until then she is saddled with a mortgage that should have been paid off at least a decade ago.

 

[DLgal]

Well, your reply really underscores the need for the OP to do some serious homework on options in the future, and that homework probably should be done now. Downsizing doesn't necessarily mean spending less. Just the Real Estate commission paid on a home sale could take a whole lot of years to recover. Not counting moving expenses.
And I guess every Financial Expert might have a little different perspective, but carrying a mortgage into retirement is one of things my brokerage advises against.
I know the 71 year old lady across the street has been in her house 42 years. Her husband passed away 5 years ago unexpectedly. He continually pulled equity out of the house to invest in materials for his bow making business so when he passed they owed $125,000 on a house they bought for $60,000. The gold and silver he used was easy to sell, but the bulk of his inventory was in wood to make bows and legally imported ivory. Things that are very valuable but take years to sell because of how much inventory he had, and until then she is saddled with a mortgage that should have been paid off at least a decade ago.

Okay. I can tell you that my father's financial adviser told him that it was smarter for him to carry a mortgage rather than pay all cash for the new home they bought in a 55+ community when he retired at 67. He could have paid cash. His adviser told him that was a terrible idea, given the low mortgage rates and the potential growth of that $175 000 over the next 10-20 years. He split the difference and paid $60,000 down and has a mortgage for the rest. His mortgage payment is extremely low and retirement fund money has grown considerably since then. His net worth, despite the mortgage, is almost 25% higher than it was 7 years ago. The house is currently worth $256,000 and continuing to rise. They just refinanced it down even lower and are pocketing an extra couple hundred a month.

The story you told is about an irresponsible man who borrowed against his house, which is always a gamble.

 

[tvguy]

Okay. I can tell you that my father's financial adviser told him that it was smarter for him to carry a mortgage rather than pay all cash for the new home they bought in a 55+ community when he retired at 67. He could have paid cash. His adviser told him that was a terrible idea, given the low mortgage rates and the potential growth of that $175 000 over the next 10-20 years. He split the difference and paid $60,000 down and has a mortgage for the rest. His mortgage payment is extremely low and retirement fund money has grown considerably since then. His net worth, despite the mortgage, is almost 25% higher than it was 7 years ago. The house is currently worth $256,000 and continuing to rise. They just refinanced it down even lower and are pocketing an extra couple hundred a month.

The story you told is about an irresponsible man who borrowed against his house, which is always a gamble.

Yes, find a good financial adviser and evaluate your situation and what you are comfortable with. Would be fun to sit a group of Financial advisers down to debate the topic and defend their positions. My daughter bought a $249,000 house two years ago, it is worth $352,400 now, a gain of over 40%, and that is the bulk of her net worth

 

[Birdie dog]

Quite frankly, I could sell my house probably in a day if that's what I needed to do. I live in a home right on the water in a suburb of Charleston. Our real estate market is crazy. My house is worth easily 2.5 x what I paid for it. If something was to happen, I want to make the decision to sell this house (and I probably will due to flood insurance etc) because I want to sell, not because I have to. Again, I could afford my home, I choose (and always have) not to be house poor.

I have decided to go with with a small life insurance policy for 10 years. That way, if and when I decide to sell the house, it's my decision alone.