By: Kevin-Barry Henry, #1 Bestselling Author
Recently we looked at HELPING YOUR CHILDREN OR GRANDCHILDREN BUY THEIR FIRST HOME. For some, it is the first time that they are introduced to the idea of life insurance. Unfortunately, that discussion can often happen while sitting in front of a lending officer at a bank or financial institution. They are happy to have you sign up for their mortgage insurance plans. It might not be the best plan for your child or grandchild.
With so many decisions to make in such a short period of time, it is natural to think that signing up is a good idea, after all it is only a few dollars a month on their mortgage payment.
I would like to help with them in this area so that your children or grandchildren can focus on the million-and-one other things they need to think about when buying their first home.
With that in mind I thought it would be a good idea to circle back and take a look at the benefits of owning your own life insurance policy vs. mortgage insurance with your lender as beneficiary.
When taking out a mortgage with a lending institution everyone understands that you should cover off the debt with an insurance policy. Not all coverage options are created equal, however. Let’s take a look at the highlights of the two options available to you.
Individually owned term insurance versus mortgage insurance from the lender
Control:
With Individually Owned Term Life Insurance you own the policy, the coverage and you get to choose who receives the death benefit, and you have the flexibility of changing the beneficiary any time you decide to.
With mortgage insurance from the lender owns the policy and they are the beneficiary. You have no say.
Guaranteed Premiums:
With Individually Owned Term Life Insurance your rates are guaranteed for the life of the policy. That means they will never go up.
With mortgage insurance from the lender the rates are not guaranteed, and they can increase.
Portability:
With Individually Owned Term Life Insurance the coverage remains intact if you switch lenders at some point over the course of mortgage repayment period.
With mortgage insurance from the lender, you will need to reapply for a new policy at higher rates (you will be older) if you decide to switch lenders at any point.
Level Coverage Amount:
With Individually Owned Term Life Insurance the coverage amount will always stay the same, even as you pay down the mortgage.
With mortgage insurance from the lender your coverage declines as your mortgage is paid off. Premiums, however, stay the same. You are paying the same amount for declining coverage.
Comfort:
With Individually Owned Term Life Insurance underwriting takes place at the beginning, at the time of the application so you know that if something happens, the money is going to be there.
With mortgage insurance from the lender underwriting happens at death so you are not even guaranteed coverage.
Clearly, your children or grandchildren will be dealing with a lot when they buy their first home. The decisions they make during this time can last a long time. You may or may not have helped them get that first home yourself. Do them another favor and help them see the difference between a bank owned policy and a policy they own and control themselves. They will thank you!
With Gratitude,
Kevin-Barry Henry
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THIS ARTICLE IS PROVIDED AS A GENERAL SOURCE OF INFORMATION ONLY AND SHOULD NOT BE CONSIDERED TO BE PERSONAL INVESTMENT OR LEGAL ADVICE. READERS SHOULD CONSULT WITH THEIR FINANCIAL OR LEGAL ADVISOR TO ENSURE IT IS SUITABLE FOR THEIR CIRCUMSTANCES.