Mortgage Insurance vs Term Life Insurance
Mortgage insurance has two different objectives. One is to ensure that the lender receives the full amount the borrowers owe should they stop making their monthly payments. The other objective is to ensure the borrowers. If one borrower passes away, the other borrower will have the means to repay the mortgage in full. The fact of the matter is that people have another choice that may be more advantageous to them: They can purchase a term life insurance policy. First, we will learn more about mortgage insurance.
Private Mortgage Insurance
The first type of mortgage insurance is called Private Mortgage Insurance (PMI). PMI is a coercive type of coverage because lenders may refuse to offer a mortgage loan to applicants if the down payment is less than 20 percent and they do not purchase PMI. With a down payment under 20 percent, the lender is taking a greater risk offering these applicants a loan. Therefore, lenders require that applicants purchase an insurance policy that protects the lenders’ interests in case the homeowners default on their loans. The policy applies in the event that the lenders are unsuccessful in selling the home for the full amount that they are owed.
Because PMI is a highly expensive product, people often complain about needing to purchase it. The good news is that they may be able to cancel it as soon as they have paid down their loans enough to be equal to 20 percent of the purchase price. Financial advisors highly recommend that people do this as soon as they can.
The other type of mortgage insurance benefits the homeowners. In the event that one or both of the homeowners passes away or becomes too incapacitated to continue working, the other spouse can repay the mortgage loan in full. People do not have to purchase this coverage, and financial advisors would, most likely, advise their clients not spend their money on this type of coverage for the following two reasons:
1. Homeowners will not be able to seek the best prices by shopping around because they will need to purchase this coverage from their mortgage companies, and that is why many going to buying a traditional term policy or non medical exam policy for 30 year period.
2. The premiums will be fixed, and this does not benefit the policyholders because as the amount they owe decreases, the amount they will receive if they file a claim for the coverage will decrease as well
The Best Advice from Financial Advisors
Financial advisors are not in favor of mortgage insurance because of its narrowly defined benefits. Mortgage insurance can only be used to pay the mortgage, but people have other necessities they need to address when they lose one of the breadwinners. For this reason, financial advisors counsel their clients away from purchasing a product like mortgage insurance that cannot benefit them in more ways than one.
Rather than purchase an expensive product that will take care of only one expense, financial advisors suggest that homeowners analyze everything about their financial lives. They will want to factor in the mortgage payments along with the amount of money the surviving spouse will need to maintain the family’s standard of living. This will include the mortgage because the policyholders will want to keep the family in their home, but they will also have a sum of money to pay other monthly expenses or pay for college educations.
Term Life Insurance
One of the best products for replacing the salary of the breadwinners of the family is term life insurance. People can purchase term life insurance that will remain in force for a set number of years as long as the policyholders pay their monthly premiums. Premiums for term life insurance coverage are highly affordable and cheaper than alternative life insurance products and the reason that term policies are so popular.
Homeowners may wish to ensure that their surviving spouses will be able to raise the children without their salaries until the youngest child has reached the age of 18. If the youngest child is two years old, for example, these homeowners can purchase a 20-year policy that will remain intact at a fixed premium until the term expires.
A married couple with children may purchase joint life insurance for mortgage protection. If one of the insured passes away before the 20-year term expires, the surviving spouse will be able to file a claim and receive the death benefits in one lump sum. This money can be used in the manner that the surviving spouse sees fit, meaning that he or she can choose to pay the mortgage in full. The surviving spouse also has the option of continuing to make monthly payments. They will also be able to ensure that their family’s standard of living remains the same in all other areas of their lives.
Finding the appropriate coverage can be easy if people seek it through an independent insurance agency, like Mozdex.com. Their insurance agents will seek extensive coverage for their clients for the most advantageous price from the many insurance companies in existence.