OT - ? about Mortgage Insurance ...

[KerriMc]

Hello ... I was hoping someone here would have a better understanding of insurance "stuff" than I (we) do!!

We recently switched our mtg back to our bank as we were offered a very good rate which we couldn't pass up. My question is about the life insurance you get with your mortgage. I had heard 'somewhere' that it is better to have a term insurance policy than to get it through the bank. What is a term life insurance policy? Can you actually do this? Can the bank deny you the mortgage if you don't take the insurance?

We opted for the critical illness insurance too - is this worth it? With the mortgage at our previous financial institution the monthly payment wasn't that bad, but with the bank and the added critical illness it seems awfully high and I'm just wondering if it is worth it.

I am totally confused with insurance issues and my husband isn't any better. Most financial things are left up to me anyways ... heaven forbid I croak - dont' know what he'd do then!

Thanks for any help

 

[ccudmore]

I priced out the difference between mortgage life insurance and extending my term insurance by the same about and the term policy extension was about half the rate of the mortgage insurance. Plus the mortgage insurance was insuring us for whatever amount was left on the mortgage (which in theory decreases with each payment) but the premiums don't decrease. Whereas the term policy extension was for a fixed amount which, in the event of our passing, would cover off the mortgage and and any remaining amount would pass to our estate.

The term policy is also generally an attractive option if you have a group policy through work. Most workplace-based term policies have the ability for you to purchase additional coverage at a really attractive rate - usually noticeably lower than you'd get from an insurance company off the street.

Finally I can't imagine a mortgage company caring that you had insurance or not unless you have a very high-ratio mortgage. In either case, I'm sure simply showing them that you have coverage elsewhere would be sufficient. I know with my mortgage, when I dropped their insurance and got my own term policy, they didn't ask about coverage.

 

[badiggio]

Term is definitely the way to go,as for reasons mentioned above.Critical illness,unless you have money to burn,isn't worth it.You have to follow the qualifications to the "T" to receive payment.Read the policy again to see "exactly" what you're coverage is for

 

[stefanospops]

As a real estate salesperson I always tell my clients to look at a separate insurance policy versus the bank products. I worked at a bank for 8 years so I know they aren't ideal. If you want me to refer you to an insurance person just let me know. But if you already have one then that is the best person to talk to. Good luck!

 

[potzie2]

The term policy is also generally an attractive option if you have a group policy through work. Most workplace-based term policies have the ability for you to purchase additional coverage at a really attractive rate - usually noticeably lower than you'd get from an insurance company off the street.

I would suggest that adding it to your Group Policy through work is a bad idea for a couple of reasons.

1. If your health is good you might receive a preferred rate on term insurance whereas with a group plan everybody, healthy or not pays the same premium. Meaning if your health is good you are subsidizing those in the group who's health is not good.

2. If you leave the employer what happens to your coverage? Most people don't know but you can convert it, but why bother with all that, go to an insurance professional, have them do a complete needs analysis and then look at the cost of a policy that addresses all your needs.

Sure if you pass away your mortage is paid for but you have left a spouse and potentially children with one income, the need to hire help if the children are young, potentially no education savings and no money to save for retirement because all the income of the surviving spouse is eaten up living now. Would they want to go back to work immediately, if the answer is no and for most people that's the case you need to be able to replace their income during the period they stay home.

I would always say take the bank's mortage insurance only long enough to go out and find better more suitable insurance and then cancel it.

 

[tone.def]

There was a Marketplace episode on CBC about mortage insurance a couple seasons ago. Can't find the video, but there's a good explanation of terms and stuff on teh website:
http://www.cbc.ca/marketplace/in_denial/

 

[KerriMc]

Thanks for all of the information. The most eye opening was that Marketplace clip, which is on that link btw, REALLY opened my eyes. I think now we need to start looking for some outside insurance. The fact that you've had your blood pressure TAKEN or a pap smear, mammogram or a PSA and all of those can be determined to be TESTS for cancer, high blood pressure, etc and then lead to disqualify you for insurance since it is called "POST-UNDERWRITING" (meaning we'll see now - after you are sick or dead - if you are actually approved!!!) ... this is craziness!!! Everyone should watch that and see how ludicrous this whole thing is. And to think I'm dealing with the same financial institution that they talked about as their examples ... terrible!!!

Now the only other question I have (right now) is that both myself AND my dh have to take out term insurance for the amount of the house correct? So if my house is say $275,000 then I might take out a $300,000 policy EACH correct??

Thank you so much!! Time to think about finding an insurance broker!!!

p.s. I sent the link to my financial advisor at the bank ... wonder what she will think of it??? I'm not stupid about how sales work at the bank - I was a teller (oh sorry, customer service rep.) for about 5 years before I landed my teaching job. I had "quotas" for referrals and goals for pushing products. I hated that part ... this is exactly what this insurance SCAM is all about!! Man, now I am p'od about the whole thing!!!!

 

[BitsnBearsMom]

Our financial advisor strongly suggested that we do term - he had us all set up for the cost of the house +extra to cover time off should our spouse pass away. It is much much cheaper then the mortgage insurance through the bank too!

 

[lizzyb]

I'm not a big fan of term insurance. Especially if you have to renew your rate skyrocket. We have mortgage insurance and a whole life policy.

 

[tone.def]

Thanks for all of the information. The most eye opening was that Marketplace clip, which is on that link btw, REALLY opened my eyes. I think now we need to start looking for some outside insurance. The fact that you've had your blood pressure TAKEN or a pap smear, mammogram or a PSA and all of those can be determined to be TESTS for cancer, high blood pressure, etc and then lead to disqualify you for insurance since it is called "POST-UNDERWRITING" (meaning we'll see now - after you are sick or dead - if you are actually approved!!!) ... this is craziness!!! Everyone should watch that and see how ludicrous this whole thing is. And to think I'm dealing with the same financial institution that they talked about as their examples ... terrible!!!

Now the only other question I have (right now) is that both myself AND my dh have to take out term insurance for the amount of the house correct? So if my house is say $275,000 then I might take out a $300,000 policy EACH correct??

Thank you so much!! Time to think about finding an insurance broker!!!

p.s. I sent the link to my financial advisor at the bank ... wonder what she will think of it??? I'm not stupid about how sales work at the bank - I was a teller (oh sorry, customer service rep.) for about 5 years before I landed my teaching job. I had "quotas" for referrals and goals for pushing products. I hated that part ... this is exactly what this insurance SCAM is all about!! Man, now I am p'od about the whole thing!!!!

I'm a Marketplace junkie. No problem.

I personally do not have mortgage insurance, we have separate life insurance policies.

 

[sk8jdgca]

you don't need two policies- just a joint policy-first to die. Keep the bank insurance until you have the other in place

 

[potzie2]

I'm not a big fan of term insurance. Especially if you have to renew your rate skyrocket. We have mortgage insurance and a whole life policy.

I have to disagree with your logic.

Your mortgage insurance is a declining benefit level premium policy, meaning that as you get older sure your premiums stay the same but the amount of insurance coverage you have decreases. If you take a term 10 policy for $300,000 and 10 years from now when your insurance is going to renew and your premiums increase if you only need $175,000 to cover your mortgage you reduce your coverage and pay the higher premium rate on a lower amount, but if you still need $300,000 or your health has changed and you no longer would qualify for insurance you can keep making the premium payments and still have $300,000 worth of coverage. Also as was mentioned Creditor Insurance (i.e. mortgage insurance) is underwritten at the time of claim. It's a little late to dispute their decision if you are dead.

Not many people require whole life insurance. That is to cover a risk/need that will never go away, and most of us don't have that kind of need so to pay for that kind of insurance doesn't make much sense.

If you have a cottage that you want to stay in the family and want insurance to pay for the capital gains tax on death, or if you have a small business that you want to leave to your kids and want life insurance to pay for the taxes so they don't have to leverage the business with a bunch of debt then maybe you need whole life, but for most people, term is really all that you need.

If the need for the protection will go away in the future it is not a permanent need and therefore term coverage is all that you likely need.

 

[Carol NJMB]

Hello ... I was hoping someone here would have a better understanding of insurance "stuff" than I (we) do!!

We recently switched our mtg back to our bank as we were offered a very good rate which we couldn't pass up. My question is about the life insurance you get with your mortgage. I had heard 'somewhere' that it is better to have a term insurance policy than to get it through the bank. What is a term life insurance policy? Can you actually do this? Can the bank deny you the mortgage if you don't take the insurance?

We opted for the critical illness insurance too - is this worth it? With the mortgage at our previous financial institution the monthly payment wasn't that bad, but with the bank and the added critical illness it seems awfully high and I'm just wondering if it is worth it.

I am totally confused with insurance issues and my husband isn't any better. Most financial things are left up to me anyways ... heaven forbid I croak - dont' know what he'd do then!

Thanks for any help

Buying any insurance from a bank is one of the biggest ripoffs ever. And, yes, it is against the law for them to require you buy any insurance from them.

The only insurances they can even require is mortgage insurance (PMI) and homeowner insurance.

Remember, if you buy insurance from a bank, you are just buying your insurance from a middleman because banks don't have insurance. They go get it from an insurance company and charge you a mark-up.

Absolutely get your own term life insurance to cover the mortgage.

If you have ever purchased a car and got your financing from the dealer, you might remember that the finance manager tried to sell you all kinds of crazy insurance. Totally unnecessary. But it makes them a ton of profit if they get someone to buy it.

You wouldn't buy your mortgage from the drycleaner, and don't buy your insurance from the bank or the car dealer.

 

[Carol NJMB]

Thanks for all of the information. The most eye opening was that Marketplace clip, which is on that link btw, REALLY opened my eyes. I think now we need to start looking for some outside insurance. The fact that you've had your blood pressure TAKEN or a pap smear, mammogram or a PSA and all of those can be determined to be TESTS for cancer, high blood pressure, etc and then lead to disqualify you for insurance since it is called "POST-UNDERWRITING" (meaning we'll see now - after you are sick or dead - if you are actually approved!!!) ... this is craziness!!! Everyone should watch that and see how ludicrous this whole thing is. And to think I'm dealing with the same financial institution that they talked about as their examples ... terrible!!!

Now the only other question I have (right now) is that both myself AND my dh have to take out term insurance for the amount of the house correct? So if my house is say $275,000 then I might take out a $300,000 policy EACH correct??

If you do not already have a history of smoking, high blood pressure, obesity, diabetes or other disease/serious ailment, you will get the highest rating and get the best rates for insurance. Once life insurance is issued, it can't be canceled by the insurance company unless the term ends or you don't pay. They can't go back 5 years later and claim you were not approved. Even if you lied on the app, in most states, misrepresentation (lying) can only be contested for 2 years after the policy was issued. In the case where the insurer issues the policy w/o any investigation of your health and then only investigates when you file a claim years later (POST CLAIM UNDERWRITING), there is much case law where insurers have lost these cases if they then deny paying based on earlier misrepresentation and it is something they do frequently.

Many insurance companies will request your medical records (at time of application) and/or send a paramed to you to take their own tests. If you are healthy and tell the truth, you should feel comfortable you will be okay if/when a claim is made.

Compare to auto insurance. If you take out auto insurance and then try to enter a claim for damage done prior to the start date of that insurance, the company will try to fight the claim - if they find out.

You can get insurance for whatever amount you want. It needn't be tied to your mortgage. Just determine how much you want and apply for it.

Good luck.

 

[FayeW]

I am a mortgage broker, and I rarely sell the mortgage life insurance. I am required to present it to each client, but they are not required to take it. I'm not a big fan of it because as someone else pointed out, your benefit decreases everytime you make a mortgage payment (as it only pays off the balance remaining). I recommend to my clients that they either top up the insurance they have through their workplace, or take a term policy elsewhere.

Your the amount of your mortgage should be insured, somehow, somewhere. The insurance I offer is not tied to the property, but to the applicants. If they switch lenders on renewal they can "port" the insurance with them. That is a nice feature because they won't have to requalify and pay higher premiums.

 

[dsneygirl]

I'm not a big fan of term insurance. Especially if you have to renew your rate skyrocket. We have mortgage insurance and a whole life policy.

I think most Financial Planners will disagree with you. Just Google Term vs Whole Life.

 

[stefanospops]

Insurance and mortgage require discipline. If you are not going to plan for the future financially than a term policy doesn't make sense. To me, the reason you get a term policy is because you expect that you should not require any insurance by the time the term expires. However, if you buy a house and get a 35 year amortization on it, and then 5 years later when the mortgage comes due you decide to refinance, take equity out of your home and re-up that 35 year amortization, then you are likely digging a hole for yourself that term insurance can only solve if you die. I see it all the time with my clients and I tell every one of them to make sure they decrease their amortization every time their mortgage comes up for renewal. But if you start with a 25 year amortization and your mortgage is paid off in 25 years or less, then quite frankly, you shouldn't have a need for any insurance. If something happens to the breadwinner the house gets sold, the survivor(s) downsize and put some equity in the bank. Treat your home like an insurance policy and match your term insurance to the length of your amortization. The policy expires as the home is paid off.

 

[lizzyb]

I think most Financial Planners will disagree with you. Just Google Term vs Whole Life.

I'm not comparing term and whole life. Based on our needs this is what works for us.

 

[dsneygirl]

You said

I'm not a big fan of term insurance. Especially if you have to renew your rate skyrocket. We have mortgage insurance and a whole life policy.

Which led me to believe you thought whole life was better and what I am saying is most financial planners disagree that it is the better option.

But I wouldn't make a decision like that based on what people on a Disney board are saying. Read some financial publications and see what the experts say before you decide.

 

[potzie2]

Insurance and mortgage require discipline. If you are not going to plan for the future financially than a term policy doesn't make sense. To me, the reason you get a term policy is because you expect that you should not require any insurance by the time the term expires. However, if you buy a house and get a 35 year amortization on it, and then 5 years later when the mortgage comes due you decide to refinance, take equity out of your home and re-up that 35 year amortization, then you are likely digging a hole for yourself that term insurance can only solve if you die. I see it all the time with my clients and I tell every one of them to make sure they decrease their amortization every time their mortgage comes up for renewal. But if you start with a 25 year amortization and your mortgage is paid off in 25 years or less, then quite frankly, you shouldn't have a need for any insurance. If something happens to the breadwinner the house gets sold, the survivor(s) downsize and put some equity in the bank. Treat your home like an insurance policy and match your term insurance to the length of your amortization. The policy expires as the home is paid off.

Are you saying that you don't think people need insurance to cover their mortgage? I am confused...I don't want to disagree with you if I am not understanding you but if that's your thoughts I'd like to know more.