What Is Mortgage Life Insurance?
From time to time, I want to share information with you that I am clearly not an expert on. I will have guest bloggers share their expertise and educate us all. This blog is written by my friend, Tim Wilhoit. He owns his own life insurance agency in Nashville TN called Your Friend 4 Life. I recommend you speak to him or someone as knowledgeable as him to make sure you are covered for the inevitable and to understand how insurance can help make life easier while you’re still here!
Mortgage life insurance has been around for decades. It was renamed to help boost sales of decreasing term life insurance. Decreasing term life insurance was a product designed years ago with the philosophy that as a person repays their debts they should not need as much life insurance. Therefore it was acceptable to decrease the face amount left to the beneficiaries with time. In the 80s, as Americans became more and more in debt and age has very little to do with becoming debt free, sales decreased on these products. Life insurance company marketing departments took the old product and put it in a new wrapper called Mortgage Life Insurance or the popular Credit Life Insurance products.
The aggressive marketing program on these products is astounding. It begins once a person closes on a new house or refinances their house, the game begins. The mailings are almost nonstop. These mortgage life insurance companies pay mortgage companies to use their letterhead and logos to “trick” the new home buyer into thinking this is important because it came from my mortgage company and I assure you your mortgage company has no idea that you even received this mail piece. The new home owner fills compelled to open this “official looking” letter and many fall for it and return the card. This begins as process of lead companies that sell the new home owners information to scores of mortgage life insurance agents who are on the phone immediately to sell this wonderful important product. However, if you were called and an agent explained that as you pay off your mortgage the life insurance benefit decreases because it is really decreasing term life insurance and your family does not get the difference you probably would not buy it.
The second way mortgage life insurance companies repackaged decreasing term life insurance is called credit life. Credit life insurance is popular in the auto industry. When you purchase a car and finance it, you are pressured into purchasing credit life. This salesperson is paid to guilt you into this life product by telling you if you should die your car note will be paid in full. Here is what they don’t tell you. On a 48 month car note the odds of you dying in that 4 year span are astronomical. Even if you died 3 years in, the car is almost paid off, so the beneficiary (bank) is paid the difference. Your loved ones own a car, no cash.
So, consider this instead. Purchase a term life insurance policy for the same period of time as your mortgage. For example, if you have a 30 year mortgage of $200,000, buy a 30 year term life insurance policy for $200,000. The premiums will be very close to the same as the mortgage life insurance plan you considered, but here is the difference. Let’s say you die at year 20 and the mortgage debt is now $100,000. Under mortgage life insurance, the beneficiary (bank) is paid $100,000 and your family owns the house. With term life insurance the beneficiary (your spouse/family) is paid $200,000 tax free, they pay off the mortgage of $100,000 and own the house, plus they have an additional $100,000 to keep.
“Caveat emptor– let the buyer beware”
Image courtesy of Danilo Rizzuti at www.freedigitalphotos.net
Tim Wilhoit is owner/principal of Your Friend 4 Life Insurance Agency in Nashville, TN. He is a family man, father of 3, entrepreneur, insurance agent, life insurance broker, salesman, sales trainer, recruiter, public speaker, blogger and team leader with over 27 years of experience in sales and marketing in the insurance and beverage industries.
Image courtesy of Stuart Miles at www.freedigitalphotos.net
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. Wife to Robert, “Mom” to Tyler and Livvie, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.