What is the purpose and proper use of Mortgage Life Insurance?
In the event of an early death of the home owner prior to the loan balance having been completed; the income of the home owner would be lost forever; yet the house payment is still due. Mortgage life insurance is simply a funding vehicle that pays an income tax free payment to the beneficiary to allow the debt to be satisfied. Then, the surviving spouse, children, or relatives can own the property free and clear without having to face the burden of raising money or facing foreclosure.
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Why would I need Mortgage Life Insurance if I already have P.M.I., Private Mortgage Insurance, or insurance from the FHA?
PMI, Protects the lender, but does result in the buyer being able to use insurance cash to pay off the loan and own the house. PMI insures the lender against losses in the event that the home is foreclosed upon. Both PMI and FHA insurance, are used in cases where the buyer has a low down payment; typically under 20%.
What Types of Products are available to me as a solution?
There are basically 2 types: Permanent life insurance that you keep for a lifetime; and Term Insurance, a
temporary plan that you would keep until the loan is paid off. Contact the author for more details if you wish insurance estimates for insurance that continues after the loan is paid off.
Which programs have the lowest initial premiums ranked from the highest to the lowest?
Permanent plans: Whole Life, Universal Life, Indexed Universal Life, and Variable Life are plans designed to be used for lifetime coverage rather than mortgage insurance specifically. They are the most expensive solutions in most cases; for mortgage insurance. Contact the author for more details.
30 or 20 year term plans with a guaranteed return of all premiums at the end of the term.
These programs feature level premiums and insurance that never go up and a refund at the end of term of all premiums paid, with no interest if the plan is cancelled after the 20 or 30 years.
Straight guaranteed level premium term insurance. These plans can be renewed with no exam in the future but are best used in cases where you plan to cancel the insurance when the terms are up.
Term lengths available: 30 years, 25 years, 20 years, 15 years, and 10 years.
In most cases the best strategy is to buy a temporary or "term insurance" plan that has the longest rate guarantee that fits your budget.
If I am to buy my own Personal Mortgage Insurance; How to pick the right product for my needs?
First of all estimate how long you might need the insurance based on how many years you will be paying on a loan. A term plan that renews or expires at the time is the least expensive long term solution.
Secondly, Work with a multi-company broker, rather than a 1 company "captive" agent so that you will have access to all available solutions with just 1 phone call.
Ask your broker for a "Vital signs report". This report compares the financial strength ratings of insurance companies as measured by 5 different independent 3rd party sources. The composite rating should be 80% or higher for the carrier you choose; according to most experts.
Work with a broker that can search several companies and compare rates for you bases on your age and current health. You can then ask for a computer printout of the best plans based on premium for you from companies that have a composite rating of the 80th percentile or higher. These reports and rate searches should be offered free of charge.
Author: Randy Taylor
Copyright Creative Commons 2/2/2012
Serving Clients since 1983
Randy Taylor Financial Services
Ca. License # 0643596
(916) 601-5270
