Should I Buy Mortgage Life Insurance

In My Humble Opinion
1

Ok, so I’m a life insurance junkie.

Currently if I die of something natural, the fam will get around 120k or so.

If I die in an accident, it goes up to 600k or so. I am maxed out at work, life insurance wise.

So I just bought a house, and already I’m being offered mortgage life insurance. I pay the premium, they pay off my mortgage if I die in the next 30 years. They’ll also give me 50k upon diagnosis of a heart attack, stroke or cancer. If I ever become disabled and can’t work, they’ll pay my mortgage payment AND my premiums. If the 30 years of my mortgage go by uneventfully, they’ll refund my premiums. Supposedly, anyway - I’m sure there’s some fine print.

Here are the facts:

  1. I am at screamingly high risk for a stroke in the long run (currently I’m healthier than I have any right to be considering my weight). Heart attack and cancer, not so much. MrPanda is at screamingly high risk of a heart attack or possibly stroke.

  2. My parents died at 63 (mom) and 57 (dad).

  3. I am 34 and just signed a 30 year mortgage. Having recently lost my mom (stroke), I am well aware that half my life may be already over, particularly if I stay fat.
    So is this kind of setup a scam? Should I bother, or just plan for the mortgage to be paid for in other ways? (I have no intention of taking the whole 30 years to pay it off, FWIW. I think I can do it in 15.)

2

Cost out a straight term insurance for the mortgage amount. With the mortgage insurance you are getting life insurance that decreases in amount over time. Compare the costs.

3

It’s not possible to give advice on how much insurance you should have without knowing what dependents currently rely on your income and how much they will need to carry on without you.

But I suspect that whatever that total amount of insurance is, it would be easier and cheaper simply to have term insurance for that amount, which includes enough to pay off your mortgage.

A quick search will find you many articles recommendaing against taking mortgage life insurance. Here’s one.

4

When we bought our first house, we talked with an insurance agent about Mortgage Insurance.

The insurance agent explained it this way:

Mortgage Insurance which pays off your mortgage should you croak, is essentially term insurance. The mortgage company OBVIOUSLY gets a commission when one of these policies is sold. (WHY do you think they tuck the fliers for Mortgage insurance in the bills they send you???) It’s also a DECREASING term insurance, since it’s tailor-made to pay off the balance of your mortgage.

If you just ask your insurance agent for a straight term policy, it’s cheaper. It’s usually for ten years, after which you can buy a new policy for the new payoff amount.

With the term insurance YOU buy, your survivor can use the money for ANYTHING. There could be crucial bills that need to be paid, and that lump sum can be much needed.

If your spouse works, it makes even MORE sense to have the amount paid directly to the survivor, since the spouse’s employment will enable him/her to pay the mortgage.

You have a lot more flexibility if you buy the straight term insurance policy yourself. And you’ll pay less, too.

Be aware that your mortgage company will SELL your name to insurance agents, and they will target you aggressively, telling you that you NEED Mortgage Insurance. I had an argument in my own living room with such an agent, who tried to convince me I was a fool and an idiot because I DARED to go without Mortgage Insurance. I told him, “Look, this is something my husband and I discussed with our agent, and we have an additional straight term policy that pays directly to the survivor.”

He trotted out his statistics about the death of a wage earner causes blankety-blank number of foreclosures each year, because the surviving spouse can’t pay the mortgage.

I finally said, “Look, Pal, I WORK. I’d manage to pay the bills if my husband died. And we both assume the survivor is BRIGHT enough to figure out how to use the money from the term policy.”

I then escorted the guy to the door.
~VOW

6

I don’t have life insurance, so maybe it’s always structured like this, but why the tremendous disparity in amounts based on cause of death?

It seems to me that the value of life insurance is providing for your dependents, so you’d want a constant amount for them regardless of the manner in which you die. In what ways would your dependents needs change if you, say, keeled over with a heart attack compared to dying in a car crash?

I’ll echo everyone else’s advice. Figure out how much your dependents will need and buy a term policy for that much that pays out the same regardless of the cause of death.

7

There are certain types of policies called “Accidental Death & Dismemberment” that only pay if you die (or are dismembered) in an accident, not from disease or other medical event. They’re substantially cheaper than term life, so lots of companies give them away for free to employees.

For example - I get 2x my yearly salary in life insurance from my employer, and an additional 2x salary in AD&D insurance. So my wife gets twice as much if I die in a car accident than if I die from a heart attack.

And they also pay if you lose body parts. The chart is humorous and gruesome. I get full coverage if I lose both hands, or both feet (above the ankle), or both eyes, or a hand and a foot and an eye, down through various other combinations, to 25% of coverage if I lose a thumb & index finger on the same hand.

8

In the UK the mortgage provider requires that you do.

9

Have man random encounters down your street? :wink:

10

Here’s a chuckle.

Hubster came home from work one day, touting the benefits of the AD&D insurance. Somebody had used the employees as a captive audience, hawking this item.

Hubster is smiling and waving the papers around, “This is inexpensive, and it’s supposed to pay MEGA bucks!”

Cynical me, I start reading the list of payouts. He’s got the big smile on his face. I’m reading about the loss of one arm and one leg, or the loss of both eyes. The payouts drop considerably once you get to the lesser disabilities, loss of one eye, loss of one leg, loss of one hand.

Aha. I read to him, out loud, “Loss of penis, $5000.”

The big smile vanished. He grabs the paper out of my hand. “Let me see that!”

It got torn into little pieces and thrown into the trash.
~VOW

11

Their needs don’t change.

Where I work, you can buy a 100k regular policy, no questions asked. After that, they want a physical. Any insurance company is going to take one look at my weight and run like hell.

I have 500k of AD&D coverage, the maximum the company will let us buy (they don’t ask for a physical). My reasoning when I bought it was such: if I end up dead before I hit, oh, 50 or so, chances are it’ll be due to a car crash. Considering it’s dirt cheap, I may as well leave the fam comfortable if I do die in an accident.

12

We bought it, because we’re old and unhealthy, and because the payment is convenient; it’s part of the monthly mortgage payment. But I couldn’t even tell you how much it’s costing. It’s the only life insurance we have. I swear to do better in my next life.

13

Seconded. If you need 120,000 for your survivors, they need it regardless of how you die.

The only possible rationale I can think of is if you die in an accident, you’re less likely to have medical bills from months of, say, cancer treatment.

Now, a policy with a dismemberment clause, I could actually see - you might need help accommodating for a lost limb, for example.

Anyway - agree with the others on the mortgage life insurance being a bad deal, regular term being better.