Lender's Mortgage Insurance VS a Standard Mortgage Life Insurance
Should You Buy Your Mortgage Insurance From the Lender Or Buy Direct?
Some banks may give you the option to participate in their mortgage insurance program 
programs (mortgage life insurance and/or mortgage disability insurance). Unless you are in terrible health and there are no ways for you to qualify for a regular policy, this is rarely a good choice. See why in the table below and what your options are besides your mortgage company:
Option One
Buying Your Mortgage Insurance Direct Through a Life Insurance Company or Brokerage Agency |
Option Two
Buying Your Mortgage Insurance Through a Lender, Bank or Trust Company |
| The policy is your own individual policy. Most often Term Life Insurance is best. |
The coverage is under a group policy. |
| You own the policy - you have complete control over it. |
The bank owns the policy - you have no control over it. |
| You have a premium rate that is guaranteed in advance, the insurance company cannot decide to change it. |
The group policy premiums can be changed if the company decides to raise premiums for the group. |
| You may purchase any amount of coverage. You have the flexibility to change your insurance plan. |
The coverage is for the outstanding amount of the debt. As your mortgage reduces, your insurance decreases. NO CONTROL. |
| The insurance company cannot cancel your insurance, only you can (assuming you pay required premiums.) |
The policy can be cancelled by the bank or by the issuing company. |
| Your individual policy is fully portable. It is not connected to the mortgage and if you re-finance your mortgage with another bank, you do not need to re-qualify. |
The coverage will terminate if you re-finance your mortgage, or if you sell your house, or if you pay off your mortgage, or if the bank forecloses on your mortgage. |
| You can convert this policy, regardless of your health. |
The group mortgage policy is not convertible. |
| You decide who your beneficiary is. Upon death your beneficiary will receive the proceeds and your beneficiary decides how and where to use those funds. The proceeds of a life policy are protected from all creditors, including a bank. |
The bank is your beneficiary and the death benefit is automatically used to pay off the mortgage, regardless of the wishes or circumstances of your dependents. |
| If you use level term, and insure both the husband and wife individually (our recommendation) then both policies pay benefits in the event of both deaths (it is also more cost effective.) Double payout! |
If you and your spouse are both insured on a bank mortgage policy, then only one payment is made in the event of both deaths. |
| You are buying the coverage from a licensed broker or agent who has many years of experience to understand your overall need for life insurance and how to integrate that with your total need. |
You are buying insurance from a bank employee who is not licensed and who receives no training in your total need for life insurance. |
| If you become terminally sick, and are laid off from work, and are not able to make your mortgage payments, but you are able to pay your insurance premium, your policy can have features to pay a partial claim and you can take care of your mortgage before your death. |
If you become terminally sick, and are laid off work, and are not able to make your mortgage payments then you automatically lose your insurance along with your house at a time when you desperately need it to protect your family. |
Conclusion
Even if the cost of individual life insurance coverage was higher than that offered by the bank or trust company, it is clear that individual life policies are superior and worth the difference. However, as most consumers are usually surprised to learn, you often end up paying the bank more than what you would pay if you purchased directly from the life company.
Mortgage Life Insurance Through a Lender. Is it worth it?
From Money Management Newsletter
How often do we review our monthly expenses - $40 for cable, $87 to the phone company - you get the picture - lots of small items to pay and the bank charging on each transaction to boot!
One such payment is the mortgage life insurance premium, that sometimes is hiding besides your Mortgage payment.
As you know, mortgage life insurance pays off your mortgage in the event you die, and may cost $50+ a month per $100,000 of mortgage principal. After 15 years, you've paid regular monthly insurance premiums and your mortgage may be down to $25,000 which means that your insurance insurance is also down to $25,000. That monthly premium now will generate a relatively small payout to your heirs, plus you've lost all other opportunities plus no cash back on your investment.
You may be better off buying a mortgage term life insurance policy for $100,000 and your heirs will receive the full amount, not just the mortgage balance. Or, make monthly extra mortgage payments with your money and save on mortgage interest.
Ask lots of questions, compare the costs of insurance products, and calculate how much mortgage interest you would save in order to make the best choice. Receive a quote for our cash back mortgage paydown option or our very low priced term plans. See an article we have published on this.
Request a Mortgage Insurance Quote
* * * Please, DO NOT confuse PMI (Private Mortgage Insurance) with mortgage life insurance. They are two VERY different plan.
