What is mortgage protection insurance?
On this post we are going to discuss mortgage protection insurance. It is a topic that most Realtors don't know much about or even bring up in discussions with their clients. Now on this little rant or informal conversation we will cover why Realtors and brokers don't bother to discuss the topic or just can't because of lack of knowledge. It’s really that simple first they don’t make commission off of it, second they’re not licensed to sell you the policy, third they have no clue themselves how it works. Please again remember I am a practicing active real estate and mortgage broker. So this isn’t a outsider just putting down agents.
There is two or actually three types of mortgage insurance. First MI mortgage insurance that is usually placed on a conventional mortgage that is higher in loan to value than 80% this type of insurance is for the protection of the lender and can be removed from the loan once the loan to value ratio drops below 80%.
The second type is MIP this is the same as the first but is specific only to FHA insured loans. The insurance can be dropped from a FHA mortgage after five years or when the loan to value ratio is below 78%.
The third and final type of mortgage insurance is called mortgage protection insurance. This unlike the two previous types is for the benefit of the borrower only. What exactly is it? It is an doesn't always have to be but usually is a term life insurance policy. Now this can also be accomplished with an Index Universal whole life policy but the most bang for your buck is a term policy. This isn't just any old term policy to be considered in my eyes to be true mortgage protection it must cover the entire outstanding balance of the mortgage along with additional funds to help the family God forbid they find themselves in a time of need. Again don't get me wrong a smart and best practices strategy is to have both a term and a IUL policy. We won't discuss that type of plan in this writing this is specific to the term policy used for the purpose of mortgage protection.
Ok first the policy like I said before should cover at least the outstanding balance of the mortgage secured by your real property. Second if your job qualifies you should have the disability income rider. What this does is provide you with monthly payments up to $1800 per month for up to two years in case you happen to become disabled. Third it should have if offered the critical illness rider. What this offers is if you have a heart attack and live or get diagnosed with cancer or some other qualifying illness you can get paid out money like 50k to help you in your time of need. Now these are things that most people are not offered at the time of sitting down and figuring out their new home purchase but truthfully this is probably the most important conversation that should be had with a first time or any time for that matter buyer.
Term policies are extremely affordable. If you were a 35yr old man and got a 500k policy that included all the features that I mentioned above for a 15yr term it could run you as low as $70 per month. I know your probably saying why would I only get it for 15yrs? Well your loan balance by then should have lowered and your financial situation should have improved, so you would not need that much coverage and can get a new policy if needed then. Really come on think about it that's one trip to the movies, one decent sit-down dinner out, or about 14 Starbucks coffees. So if you decided to skip Starbucks every other day you'd have enough to give your family piece of mind.
I know no one likes to talk about life insurance and no one likes to plan for getting hurt or becoming ill but if we don't then it's not us that suffer it's our loved ones that care for us or that we leave behind.
It’s not how much you make it’s what you do with what you make. Not planning is never consoling to the worker who was hurt and is getting foreclosed on because they didn't make it a priority to protect their home and family, it's not an excuse or consoling to a widow when after losing her husband then has to move out of the home he provided for her just because he couldn't find the motivation to skip his Starbucks every other day and take the money to protect his family. So next time you plan that trip to the movies ask yourself what would benefit your family more that movie or the mortgage protection policy that same amount of money could pay for? For any questions please don't hesitate to contact me and for a free quote as well don't hesitate to contact me.
Guillermo Serafin
Department of Insurance of California License number 0h04158
Cell 310-738-7108
E-fax 424-702-3219
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