A question I hear quite often from clients is “What insurance can I buy to protect my mortgage if anything happens to me?” In this time of economic uncertainty, high unemployment, and foreclosures, I love having such smart clients who want to protect their assets.
If you’ve asked this question yourself, you might think you need mortgage credit insurance, based on the name. Unfortunately, mortgage credit insurance is not going to help most homeowners in the way they need.
Mortgage credit insurance is basically an expensive policy for a declining liability. The policy typically pays off your mortgage in case you die or default. But over the years, as you pay down your loan, you’re paying very high premiums for less coverage.
The problem is that sometimes predatory lenders target vulnerable homeowners, such as those who are elderly or have low incomes or credit problems, and convince them they need mortgage credit insurance and other unnecessary mortgage features.
How do they convince these homeowners? They’ll claim the homeowner can’t get a mortgage without the guarantee of mortgage credit insurance. If a lender tells you this product is a must, watch out! Mortgage credit insurance is usually expensive and unnecessary.
If you are worried about being able to pay your mortgage in case of disability, unemployment, or death, check out the less-expensive options of disability insurance and term life insurance. The premiums for mortgage credit insurance can be up to three times higher than regular term life insurance or disability insurance.
As you know from my previous blogs, I’m a big proponent of using term life insurance to ensure peace of mind and protect your assets. See more about term life insurance here.
Protecting your mortgage isn’t the only reason to buy life insurance or disability insurance. These insurance plans can provide a cushion in any number of situations, covering expenses such as:
- A funeral or end-of-life ceremony
- Uncovered medical expenses
- Any estate taxes owed
- Lump sum debt obligations
- Final estate settlement expenses
- Ongoing business expenses
- Ongoing household expenses
Don’t get sucked into the trap of mortgage credit insurance. Protect your assets and protect your family and finances with the security of term life insurance or disability insurance.
Linda Rey is a licensed insurance agent at Rey Insurance with a broad spectrum of expertise in life, accident, health, property and casualty insurance as well as retirement planning and college funding strategies.
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