Upon an initial consultation, many people I meet are not actually sure whether they have mortgage insurance coverage until they inspect their bank statement. Very often, it is presented to them as part of the mortgage signing process with an implication that it forms part of “the package.” Mortgage insurance is a form of group insurance and, although there is a cost benefit in bringing a bunch of people together under one policy, there are some dangers:
- Rates of smokers and non-smokers are often lumped together. This often gives smokers a break on their premiums but gives non-smokers the short end of the stick.
- You are part of a master policy whose rates are not necessarily guaranteed and could be increased with notice by the carrier.
- These coverages are tied directly to the mortgage and pay it off in the event of death, even if the surviving family would need that money right away and would want to continue the mortgage payments on schedule.
- The coverage decreases in value as the mortgage principal is paid down.
- There usually are no options to convert this coverage to a more permanent type of coverage should your needs change.
- Very often, especially if you are a non-smoker in good health, you can get the coverage at a lower cost through a policy that is independent of your mortgage lender.
Solution: Again, a formal Estate Plan and Risk Analysis will address this issue and could help you improve your life insurance benefits at a lower cost.
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