Having the best information allows us to make the smartest decisions – insurance is no different. When we are closing on a mortgage, we often don’t have our focus on the best insurance options for the new debt – we are naturally more concerned about the home and the equity that it can provide. This lack of awareness often leads to clients insuring their mortgage with an inferior product offered by their bank simply because they’re not privy to their other options. Folks simply don’t know that they can opt out of the insurance they have with the bank to protect their mortgage by cancelling it, or not even purchasing it in the first place.
Level Coverage versus Declining Benefit
The insurance offered by your bank to coverage your mortgage will only clear the principal balance should you ever need to claim on it. While you pay your mortgage principal down, the benefit available to your family declines as well; but the premium you’re paying stays the same!!!… more on this later. When getting a term plan directly from an insurance company, the benefit that is paid out is level, even as you pay your mortgage down – making the policy more valuable as time goes on.
Pre-Claim versus Post-Claim Underwriting
You may recall answering two or three simple questions about your health during the mortgage application process – or even worse, no questions at all. When a bank issues an insurance policy to one of its mortgage clients, they have added you as a policy holder to an existing plan and they reserve the right to refuse to pay a claim should they find anything out about your health that they were not aware about before the claim was submitted. When getting a term insurance plan directly from an insurance company, you’re asked about your health upfront so that when the policy is issued, the insurer has to pay the money to your family should you make a claim. This gives you much more comfort and confidence that the insurance on your mortgage would actually do what it is intended to.
Level Premiums versus Premium Increases on Second Mortgages & Re-financing
When getting a term insurance plan directly from an insurance company to insure your mortgage, not only does the coverage remain level but so do the premiums. This is important not only for the overall payments (principal, interest, insurance), but also when taking out a second mortgage or when re-financing. If you’re taking on additional debt in the form of a second mortgage, or if you’re re-financing an existing mortgage, the bank will issue a new policy to protect the new debt. This policy will be based on your new age and will most likely be substantially higher than you were paying before. With a term plan covering your mortgage, a simple increase of your coverage will solve the problem of a second mortgage or a re-finance with much greater ease.