Real Estate: Insure the wellbeing of your family with life and mortgage insurance

By Jonathan Priest

It happened, it’s happening, or it’s about to happen!  You’re a homeowner, in the process of qualifying for a mortgage, or maybe you just took advantage of these super-low interest rates to refinance.  There are a million pieces of paperwork to review and file, and offers from companies to replace your windows, pave your driveway and install the latest greatest internet service.  Odds are, there’s even been a document or two that surfaced mentioning... Mortgage Insurance. 

Naturally, a question or two might arise; what is it, what is it for, what does it do, and how would it help you, the new or current homeowner?  First, it is generally offered by the lender of the financing to you, to pay off the loan if you or a co-borrower die during the term of the mortgage.  I know what you’re thinking... “Isn’t that life insurance?”  The short answer?  Yes.  However, there are a couple of important things to consider when comparing mortgage insurance to a traditional life insurance policy. 

When you purchase mortgage insurance, you pay a set amount for that coverage for the entire term of the loan, despite the fact that over time, you owe less and less to the lender as you pay down that balance. When an insured dies and the policy pays out, all proceeds go to the lender to pay off that loan.  No funds are made available to survivors of the deceased for funeral costs or any other bills that might need to be paid. 

What is the solution to this problem?  Life insurance that is issued to (and owned by) you, the owner of
the home.  You are able to choose who your policy proceeds would go to in the event of your death, and you are able to update this information at any time, should your needs or your financial situation change.  The money passes to this person or these persons tax-free, who are then able to pay for your final expenses, pay down the mortgage, or set funds aside for loved ones as they see fit. 

Question in the back?  Isn’t Life Insurance expensive?  Actually, life insurance has gotten less expensive, dollar-for-dollar, as people are living longer and making healthier life choices!  Rates are based on an insured’s health, age and gender, so it makes sense to get coverage as early as possible.  As a reference, I just quoted a couple in their early 30s $750,000 in coverage each, locked in rates for 30 years, for less than $100 per month!

The first step is to find an agent who is licensed to sell Life Insurance to help you ask and answer
questions about what your needs and goals are, to make certain you are purchasing the right amount of coverage for your specific situation.  If you have a good relationship with the agent who insures your cars and home, start there!  They will already have a good understanding of your financials, and it will benefit both of you in the long run to have your policies handled by one trusted advisor.  There is nothing sadder as an agent than trying to help a person who just lost a loved one track down a life insurance policy that they cannot find, because there was paperwork from half a dozen companies mixed up in the bottom of a desk drawer.

The second step is to calculate your life insurance needs, running through a quick and easy-to-remember acronym, LIFE.  This stands for: Loans (outstanding mortgages, auto loans, student loans, etc.), Income (how many years of the deceased’s income would help the surviving spouse, family member or other loved ones get back on their feet?), Family (money left to loved ones as part of the deceased’s legacy), and Education (are there children whose further education you’d like to help support?).

The third step is to use your agent’s help to pick a financially strong company to purchase coverage from.  I would discourage purchase of a policy with “no medical underwriting”.  In most cases, these companies will deny payment if a pre-existing condition” is found.  There are three basic types of Life Insurance.  Term is the least expensive, and locks in a rate from 1 to up to 40 years.  It will pay out a death benefit if you pass away during the term of the policy.  Permanent policies are more expensive and may earn cash value in addition to paying out a death benefit.  They will run for as long as you continue to pay the premiums.  Return of premium term policies are term policies that are more costly than term but less expensive than permanent policies, and will refund 100% of the premiums you paid in if you keep them until the end of the specified term. <

Jonathan Priest is a MetLife property and casualty specialist in Windham. Call him at 207-893-8184 for your home, auto, life or business insurance needs.