Do your eyes glaze over when you are faced with pages of information, charts and graphs? I have simplified the comparison between mortgage-lender insurance and personally-owned mortgage insurance.
- The bank or mortgage lender is the beneficiary to the insurance benefit – not you or your spouse.
- Mortgage insurance is not portable if you sell and move to another home.
- You must re-apply for coverage every time you move.
- As your mortgage decreases, the insurance benefit decreases. Premiums stay the same. Over time, you are paying for “air.”
- You do not have a choice of insurance plans to purchase.
- Only a few questions are asked on the application. Full underwriting is done at time of claim.
- Because full underwriting isn’t done until the death of the insured occurs, the claim could be denied if the company determines a person died from a pre-existing condition.
Personally-owned mortgage insurance
- Surviving spouses are the beneficiaries to the insurance benefit. They can pay the mortgage down, or use the money in any way they see fit. They may feel it’s more beneficial to invest the money if returns or interest rates are high, and continue to pay the mortgage down.
- Your insurance is portable. If you sell and move to another home, your coverage remains the same – it doesn’t decrease. You can choose to increase or decrease your coverage at will. It’s your choice.
- You do not have to re-apply for coverage every time you move.
- As your mortgage decreases, the insurance benefit remains at its original level. With certain types of insurance plans, premiums can become paid-up in 20 years or even less. The coverage remains in place while no further premiums are required.
- You have a choice of term insurance including: 10-year term, 20-year term, and 30-year term.
- You can also take universal life or whole life products. Universal life is the least costly of permanent plans. It is a combination of term to 100 and investments. Universal life has the potential to pay for itself over time because it can generate cash values.
- Cash values usually start to exceed premiums paid by about 20 years or so. That means in time if you decide to cash out the plan, it has cost you nothing.
- Full underwriting is done up front at time of application.
- That means claims cannot be denied unless fraud can be proven.
- An example of fraud is when a person claims to be a non-smoker on the application, and is in fact a smoker. If fraud can be proven, the claim is denied, and the premiums are refunded.