All About Mortgage Protection Insurance

Transcription

1 All About Mortgage Protection Insurance Tips to Save You Time and Money Beginners Guide To Mortgage Protection INTRODUCTION to Mortgage Protection Insurance It s a fact: If you ever take out a mortgage or refinance a current one, you are guaranteed to have somewhere between 2 and 10 or more contacts from insurance agents virtually begging to come talk to you about mortgage protection insurance You ll probably receive at least 2 letters from agencies telling you to return a post card if interested in the subject. You ll then get a call from an agent who will indicate he or she is responding, and insist they MUST see you for a variety of reasons none of which is stated as the purpose being to actually write a policy for you, but more than likely to confirm you qualify. They are not a life insurance agent, but an underwriter, or any other variety of job titles. Let s be frank: If they are going to help you, they are a licensed agent and they earn money when they write a plan for you. Now being f rank, I AM a licensed agent.. only I come from a different perspective. I deplore the manipulative techniques, and at the same time, I respect the fact someone smart enough to fill out all the paper work and get a mortgage is smart enough to know and understand if they want this protection, and what it s all about. But sometimes I m mistaken. The facts are: Many people do NOT understand what it s about, and the objective of this book or post is to help educate you, and in the process saving you time and money. But my bottom line is the same as all the other agents: I d like to be the person you get your plan from, if in fact you decide it s a wise choice. I m paid not to educate, but to place plans. Only I m going to do it without insulting your intelligence or playing head games, fear of loss, etc. An old saying, A man convinced against his will.. is of the same opinion still or If I say it, they will doubt it; if THEY say it, they will believe it So my objective is the same as all the other agents. But the technique is vastly different. Theirs is to SELL you a plan. My objective is to help you BUY a plan.

2 MORTGAGE PROTECTION INSURANCE WHAT IT IS At the bottom line, there s really two general types of mortgage protection insurance but both have one objective: the objective is either to pay off the mortgage directly, generally if the policy holder dies, by making the beneficiary of the mortgage company.. and so if the policy holder dies (or has another qualifying event within the plan) the mortgage company gets the money. Not sold very often, and not a very good idea because mortgage companies sell and resell the mortgage, and you, as the policy holder, lose control or at worst have to keep the beneficiary updated all the time. The other plan is at the very base some form of a life insurance policy. First it could be a term plan (most often is) or could be a whole life plan. Let s concentrate on the term plan The Term Plan and Your Choices Term plans are by far the most popular and common. When you buy a term plan, you buy a benefit amount (generally a flat benefit, most often linked to the amount of the mortgage) and for the plan to be in effect a certain number of years. If you have a 20 year mortgage, it most common is a 20 year term plan. In the older plans, the only triggering event is the death of the policy holder, but many newer plans also have what is generally considered a living benefit. This may be the diagnostics of a critical illness, but you must be aware of the difference of a critical illness most likely resulting in death, vs one that has a recovery possible. Traditional triggers are cancer, stroke, and heart attack. Other variables include an incidence of a disability, and sometimes disability income is quite different. These are often sold as riders at an additional cost, particularly in term plans. They are more common in a whole life plan as built in. Do NOT think FREE.. nothing in this industry is free. Let s think about the face and term of the plan you may be considering for purchase We ll assume your mortgage is $250,000 for 30 years.. very common scenario. Your logical or first thought may be a $250,000 policy for 30 years. But is this the best choice.. and particularly if you are relatively young? Now we first must agree that the lowest cost or quote you will probably ever get is the one you can get today, because tomorrow you will be older, and the cost rise according to the mortality tables. But beyond that, and let s assume this particular plan is dedicated to the goal of paying off the mortgage in the event of death. Let s also assume, that other than for death by accident, your probability of death due to more natural causes is lower in the first 15 years. You do everything possible to maintain a healthy life style. So you plan to live the 30 years.. but your mortgage at the 15 year point is starting to have reducing principal. Maybe not so much in the first 15 years, but beyond that.. the payoff would not be $250K,

3 but maybe something like $175,000. So would it make sense to take a full $250,000 plan? Why not a $150,000 plan for 30 years (based on pay off of death by natural causes) but a $150,000 ACCIDENTAL DEATH plan for 30 years Accidental death plans have far lower rates. You have traded off out of pocket money for a little inconvenience of two insurance plan payments. Most agents who will come to see you know this: You have low probability of tolerance for any of the details and they need to get your signature on something.. period. So while the agent may KNOW all of this, psychologically he knows he or she has to get you on to something. Now you can see where this book / article is starting to help you. You may see an agent or even on your own now be thinking OK, I have a 30 year mortgage, I pass on at 25 years into it, but I have a 30 year mortgage insurance policy and at 25 years, I ll have lower payoff than the insurance proceeds. Am I not over insured at that point. Technically, you are but if we agree that inflation is a way of life, the probability is that while you may get more money than the face payoff value of the mortgage, the overall purchasing power you will have will pretty well make you (or your beneficiary) happy you have the additional cash. WHAT ABOUT DECLINING FACE TERM INSURANCE You know or have heard that there is such a thing.. The face value of the policy is reduced every year pretty much in sync with the mortgage amortization tables. As the face goes down, so does your premium. These policies were popular at one time, but few firms issue them any more. WHAT ABOUT THE FACT you may Move or Refinance? Again.. in today s world, people tend to move about every five years. Maybe upgrade as the family expands; maybe choose to have a nicer living environment. Maybe a job relocation. Or as you age, a downsize. Or you refinance. The advice: get what you can afford today. Buy level term, and keep the benefits cataloged, at least in your mind (or the mind of the beneficiary) this is the primary purpose. The new MORTGAGE can be any value, any number of years and it s not a positive linkage. If you hit a windfall (win the lottery?) and pay off the mortgage, then you might consider dropping the term life plan (as the mortgage is gone) and putting the money to other better uses.. an investment, a college fund, a regular donation to a cause of your choice. Keep this plan separated in you mind. WHAT ABOUT THE FACT YOU HAVE OTHER INSURANCE We hope you do. Some readers will have group life insurance as from work. But you know this: do not OWN it. Even if you are the beneficiary. First, your company or union can drop the plan at virtually any time.. in spite of all the words in your employment contract. They probably won t, but if they want to.. they will find a way. Then your employment or employer can change. Few Americans go to work for a company and stay 15, 20, 25 or more years. When it s available, it s generally both cheap and limited. Why? Because life insurance premiums are based on both the benefit amount and the number of years the plan will be in effect.. and the group insurers know that few work plan holders will be around more than 10 or so years! Get a plan you OWN

4 WHAT S THE BEST Other PLAN To OWN? There s no absolute rule we can put in this book. It all comes down to suitability and to answer that question, you should be sitting down and talking with a professional agent. The big difference is when you have that conversation, you both agree right up front you are going to be talking about life insurance and possibly related subjects such as succession planning, estate planning. It s not a quick pop in with you that is clearly related to the idea better get this plan now in case you die John, if you were to die next week, how would your wife be able to manage the mortgage payments? Would she have to try and sell the house and move in to a small apartment or back with her parents? There would be none of the way too common emotional manipulation; you are sitting down for a full planning session or two.. and not agreeing to see someone for 15 minutes to see if you qualify. If you want a simplistic answer, we first see a difference in spending money vs investing our money. The question might be related Is it better to rent than to buy? In the case of life insurance, again, it comes down to suitability and for so many, a great whole life insurance plan makes the most sense, particularly when tied to retirement benefits which can be far more than the face as they can be accessed on an income tax free basis. By the way.. as your author.. we do this type of planning as well, and it s because of our experience in this area that we feel qualified to write this book. SO WHAT ARE YOUR Options IN THE TERM PLAN? What do you need to know to buy a mortgage protection plan? We ll break these down to a couple of areas: WHAT do we want to have? * WHERE do we get it? THE WHAT Explored The most common What has been touched on. It s a flat term plan, level benefit. You are generally presented withfour or more options: * Return of premium (ROP) * Medical or Non Medical Issuance * Accidental death rider(s) *Living benefit rider We have discussed the bottom two, but not the top two. The ROP is an interesting rider. It s an interesting gamble, well calculated by the issuing insurance company. It says to you, if you live past the number of years the policy is issued for (say 20 years), we will return every dollar of premium you have paid us. Maybe even with some interest! But there s a kicker it s going to cost you every month to take this option. If you are hearing it for the first time, it s hard to make a decision because you ve not had time to do your homework. You need to! Take the extra amount you pay for the premium and

5 find out if you were to take that same amount and invest it some place, would you get more back elsewhere. We suspect you can t in a standard bank savings account, or even bonds. The market has some risk. In short, as you are presented this option right at this time, you don t have enough information to make the decision. If you have to rely on SOMETHING, know this: The insurance companies are in the business to make a profit. They have all kinds of programs to recognize and calculate risk. They know in a few cases they will return your premium, but in general, not enough to lose money on this risk. You know however, unless you die, you won t forego this unless the insurance company goes out of business. So from that perspective, your additional money is only at ONE risk.. you dying before the 20 year (or whatever) term is up. But our advice to you might be to talk with a qualified financial planner and have them evaluate it. If you feel pressed on getting an plan today, pick one.. do your research.. and then change the plan in days./ Medical or Non Medical Issuance The facts: Non medical issuance is based on your answers to a few underwriting questions. The company is gambling on the fact you answer them correctly.. and NEVER answer that you are a non smoker or tobacco user if you are. Any fraudulent answer means you forfeit EVERYTHING. In spite of you knowing this, the insurance company is taking some risk that you are who you say you are, and they are compensating for this with higher costs to you. This is a great convenience for you to get a plan this way. Issuance is faster, plus you don t have to meet with a paramedic and donate blood, urine, be weighed, have your blood pressure measured. A lot of people just hate that.. even when it can be done in your own home. Your come to your house; I just want to see if you are qualified agent will in more cases than not even bring up the choice of paramed or not, but press on for simplified issue. He (or she) again has the appointment with you based on a time schedule.. and they know to bring this subject up will take more time. You may need to have it explained. If you want the paraded, it s doing to delay policy issue and his or her commission payment. And there s a more dire consequence we ll cover in a moment. The surface reason is to help you get protected, and get you protected as soon as possible None of us ever know the minute we ll die or have a horrific accident than can deprive us of our ability to make our mortgage payments. So let s get it done now. In a way, I agree with this.and here s why. With most plans where you submit a payment with application, you get a binder or are covered pending permanent plan issuance. That can take some time, and then on top of that, you get a 10 day free look where you can really get into all the fine print in the policy. See what might be excluded. You will NOT get this kind of information in a sales pretension. So what we advise is: IF THIS MAKES SENSE AND YOU HAVE MADE SOME OF THE BEST PLAN CHOICES, SUBMIT YOUR APPLICATION but let s read jut a tad farther: PROS AND CONS OF A PARAMED ISSUED Mortgage Insurance PLAN First, be aware that you may not have this choice.. a non paramed option is most often limited to policies below a certain face value. Now the pros: If you opt for a paramed plan, and it s issued, your costs will generally be lower because the insurance company knows much more about you and basically confirms you are healthy. An in between : You get what amounts to a free mini physical. But don t let this influence you as

6 most all of us who will read this have health insurance under the Obamacare rules, and we are all entitled to a free real physical.. The cons: First one is obvious and should not count for much: Convenience or inconvenience. The second one can have a serious effect: If you are found to have a disqualifying medical condition, or one that can result in a rate up, it can have financial effects the rest of your life. In fact, for certain conditions, you many never be able to get standard life insurance again. OUR ADVICE: If there is any question of what to apply for, first know your physical condition. Have that free Obamacare physical. Know your height, wt, blood pressure. Know your cholesterol numbers. Ask your agent or company for a copy of the underwriting guidelines. Prevent the stress of not knowing. If you think you are relatively healthy and can pass the questions of the non paramed, and are willing to forego a few dollars of saving, then go for the non paraded plan. Just be sure you answered everything truthfully. WHAT IF YOU CAN NOT QUALIFY.. but still want insurance? Don t despair! There s an answer for you and it is called GUARANTEED ISSUE. Guaranteed issue is most commonly offered as a whole life product, some times labeled Final Expense. (and yes, we offer this). Because of the risks, it s generally more costly per thousand of face value. And the total face you can get may be limited.. as much by your financial circumstances as anything. In terms of your mortgage and this plan, you must simply look at it this way: Even though you have a mortgage with monthly payments of $300 and you can only get a plan with a $10,000 face (paid income tax free, by the way), while you will not pay off that mortgage.. you ll have many months of payments covered while the survivors have time to find an alternative living arrangement. There will be no need to move out immediately, lose a house to foreclosure, or even sell below market. It s truly a case where something is better than nothing It generally works like this: You apply for a $10,000 face plan. You start to make regular preimum payment, but should you die in the first year, the only benefits are return of the premium. In year 2, your plan pays 30% of the face (or the plan price.. this is only an illustration); In year 60% is paid, and if you survive the condition, at year 4, the plan pays 100% of the premium. This type of plan can even be issued to cancer people, those with heart transplants, etc. Even incarcerated individuals can most often be issued a plan of this type. Very few of these plans have upper age issue limits as well and while most seniors may not have a fresh mortgage, they still may want something to cover their burial and funeral expenses when today a simple crematinon and memorial service can run over $5000. WHERE AND FROM WHO to Get your Mortgage Protection Plan The answers again take you to two factors. When you get a plan these two are the agent/agency and the insurance company. As to the insuring company, know that premium are set and regulated by law. Any one given plan is the same exact price regardless of who you get it from. Discounting, rebating, etc is illegal (but in the very last part of this.. we ll tell you how you CAN save money if you want to do a little work).

7 Companies are rated, and premiums are related to the rating. We suggest you never consider a plan from less than an A rated company if you have any choice at all.. the choices most option being related to your ability to fund the plan. Just be aware of the risks, which for most people are not justifiable. That brings us down to almost the last point: Who do I get my plan from, or where? This largely becomes an intangible. If you know now what to look for, what to compare (we plan on providing a checklist as an addendum), and you know the same plan costs identically the same amount from every agent or agency qualified to offer it.. then it comes down to this intangible WHAT IS YOUR COMFORT AND TRUST LEVEL WITH THE AGENT YOU ARE WORKING WITH OR WHO IS OFFERING THE HELP AND INFORMATION? Do they truly impress you of being YOUR advocate? Taking the time to make sure you understand all your choices and options? Or are they pressuring you to do something sooner than later? If they make that suggestion, is there a reason such as the 10 day free look and the knowledge this is probably the only way to really see all the fine print Is your agent some employee that you may never ever be able to find, see, talk with after the plan is issued.. he or she may move on to another agency.. or is this a person who you know or feel will be around a long time and be accessible? Is his or her name in the agency? Do they have a personal and permanent vested interest in you, knowing that their best source of new business is your referral? Or was this some fluke connection you made from an internet web site? The best way for Mortgage Protection insurance purchasing The best way, in 2015, 2016, and beyond.. simply because it s what is current is to: Identify exactly what it is you want and need in your mortgage protection insurance plan If you have a known and trusted source (and I hope you include us ) Shop for your plan, purchase your plan. This article/book has given you the questions to ask, the criteria. You are equipped. Where can you go to get your plan quote and information? CLICK HERE or copy this text and put it into your browser: Feedback always appreciated: Joe Leech, jvleech@leech-insurance.com A Pdf file of this page is available at