Mortgage Insurance versus Life insurance.
Mortgage Insurance only provides protection in the event of death on the outstanding amount of the loan. Life Insurance provides protection for the entire family (mortgage plus the family’s future). Let’s use a simple scenario to illustrate the difference. You’re married with a mortgage and you already signed up for the mortgage insurance because it was inexpensive and smart to protect your home at that time. Absolutely correct, no mistakes. Moving forward we see that several things are likely to happen.
Your salary increases, your mortgage decreases and, oh boy, kids come along – this one is always planned isn’t it? These are what you could possibly expect to happen, correct? Now the math. That $300,000 mortgage and it’s insurance that you have paid after two years is down to $280,000. Your salary has increased by $5,000 a year and kids are on the horizon – unless they’ve shown up already. What’s the problem? Nothing really, you’re still alive and well and that’s all that matters. Except … you’re still paying for mortgage insurance at the same cost for something that’s now worth less.
Also, you’re not insuring the future … not because we’re planning on becoming an Angel anytime soon, but because in the event of unexpected death you want your financial issues in order and your loved ones full taken care of. Again, the best laid plans … remember the part about the kids? Same with Angels.
Why Life Insurance?
Life insurance covers your mortgage, as well as you and your family. Here it is … but remember, the important part is to see a life insurance specialist for the advice that is correct and pertinent to you. Aside from the options that are available to you in life insurance (such as Term, Universal Life, Whole life) the important thing is you get the appropriate type of insurance to meet the needs of your life.
Benefits of Life Insurance
The reasons are many. You insure the mortgage, you insure your earnings and you pay for something that is increasing (your future earnings potential) as opposed to something that is depreciating (the mortgage). Doesn’t it make more sense to cover the ability to make all future payments as opposed to only those associated with a single debt? Having said this, as a mortgage specialist I am always refinancing clients and putting second mortgages on their home. Reason, they didn’t plan on it … bad things happen to good people too. In these instances you wouldn’t need to reapply for any additional insurances because you planned for it already. I’ve been advised by various life insurance specialists to obtain Life Insurance (oh ya, get Critical Life too, it’s of equal value … I have witnessed it 1st hand) based on the range of 6 times to 10 times your optimum salary.
You the client, must decide what makes most sense to you … but remember, it’s a fact that life changes, so bet on that when making this personal decision. When I first started out I planned on two things. Save for at least 3 months’ expenses in the event I lose my job (which I did) and if I change careers along the way (which I did that too) plan for a restructuring in your own home also. Life insurance is a serious matter and can be a valuable financial tool. It really can look after you in different ways where and when you need it most. Get life insurance and you won’t regret it. If absolutely necessary you can cancel without penalty either, but this only happens when the financial family situation is dire, then it makes sense … temporarily ‘till you recover.
