Why Mortgage Insurance is Usually a Waste of Money

[kduever]

I wanted to start a thread to let you know why most of you should NOT get mortgage insurance.

To let you know a bit about myself - I used to work in the insurance industry but left about six months ago. (Did not enjoy living on commission)

There are several problems with getting mortgage insurance through a traditional bank.

1. The underwriting is not done until the time of claim (which means you could be denied if you ever had to make a claim)

2. Your mortgage continues to go down - but you keep paying the same premiums on your mortgage insurance.

3. When mortgage insurance does pay out, it pays the bank - not the surviving family.

4. In many (dare I say "most") cases, mortgage insurance is more expensive than term life insurance.

For most people, term life insurance is a better option to mortgage insurance because underwriting is done when you apply - not when you make a claim - (meaning that if you or your family ever did have to make a claim, you know that it will be paid out). And it will be paid to the beneficiary - not the bank (meaning survivors can use the money as they see fit) and finally - for most people, term life insurance is actually less expensive than mortgage insurance.

If you currently have mortgage insurance, I suggest finding a good financial advisor and investigating term life insurance as an alternative. Although I am no longer in the industry myself, I can help you out by referring you to someone in your area (for those SCers that live in Ontario). Just PM me if you would like some help.

Not convinced? Watch this video from CBC Marketplace:

http://www.cbc.ca/marketplace/in_denial/

[jknmomma]

We have mortgage insurance on our house...we pay $47.02 per month...we recently spoke with our financial advisor and he said the same thing you did....Great topic to start

[Woofy]

Thanks, kdeuver.

Points number 2 and 3 are the main reasons why I never buy mortgage insurance from the bank!

They are very aggressive in pushing this product, as this is a huge money maker for them!

[lalita1985]

I'm going to have to disagree with you... when my father was killed in a car accident we found out he had let his life insurance slip and we did not get anything from the insurance company. My mom is disabled and can't work...so we had very little income when he died and if we didn't get our house paid off we would have needed to move on top of dealing with his death.

I agree it may not be the BEST solution if you just want one type of insurance but in our case we were very lucky to have it.

[kduever]

I'm going to have to disagree with you... when my father was killed in a car accident we found out he had let his life insurance slip and we did not get anything from the insurance company. My mom is disabled and can't work...so we had very little income when he died and if we didn't get our house paid off we would have needed to move on top of dealing with his death.

I agree it may not be the BEST solution if you just want one type of insurance but in our case we were very lucky to have it.

I am very sorry to hear about your father - but you are also very fortunate that your mortgage insurance paid out - not everybody's does. But the key here is that for MOST people - term life insurance is a far better investment than mortgage insurance.

[calgarymama]

What a great thread to start -a very informative post, kduever! When we bought our house we go mortgage insurance because we thought we were "too busy" to deal with getting life insurance

When we decided to start our family we switched to a term life policy and cancelled our mortgage insurance, and felt it was the right decision for us! I really regret the money we wasted paying into the bank's mortgage insurance

[JumboShrimp]

Awesome post kdeuver. Very informative. I absolutely agree that Mortgage Insurance usually is a waste of money. When I applied for a mortgage, the mortgage specialist insisted that we were REQUIRED to sign up for mortgage insurance. After speaking to my financial advisor, he told me that it was certainly not required and that it was a total waste of money because many times, you will not qualify for a payout. I immediately cancelled my mortgage insurance and just stuck with my life insurance.

[freebiehunter]

underwriting is done when you apply - not when you make a claim

True - and this is why we switched a couple of years ago.

In other words, the bank will look at your application and do bloodwork, etc, etc AFTER you make a claim. Correct me if I am wrong, but I believe this means that they coud decide that you are not eligible for payment because of some pre-existing condition, or because they find nicotine in your blood and you claimed to be a non-smoker, etc.

[itsjustmebub]

great post!
glad we declined ours

[kduever]

underwriting is done when you apply - not when you make a claim

True - and this is why we switched a couple of years ago.

In other words, the bank will look at your application and do bloodwork, etc, etc AFTER you make a claim. Correct me if I am wrong, but I believe this means that they coud decide that you are not eligible for payment because of some pre-existing condition, or because they find nicotine in your blood and you claimed to be a non-smoker, etc.

It's sad but people can pay into mortgage insurance for YEARS only to get denied when they try to make a claim.

With term life insurance, on the other hand, underwriting is done up front - so you know it will pay out as long as you continue to pay the premiums.

[Horndogg]

But sometimes it is a good thing to have. My husband got hurt at work and they paid my my mortgage for 6 months.

[newb]

So if the monies are paid out to the bank ..and you`re paying to insure the banks loan to you!!! I believe the CHMC already does that......... I tried to get that ins. but with a pre-existing condition they made me jump through hoops and I gave up...lucky I did!

[ward.mama]

My bank told me I HAD to have mtg ins. This was informative.

I think I will keep it as is, though. My husband and I both own our own properties (bought before we were married/together), and I JUST rented my property out. IF I should die, at least I know he doesn't need to concern himself/worry about the property.

[Prairie girl]

But sometimes it is a good thing to have. My husband got hurt at work and they paid my my mortgage for 6 months.

That's probably disability insurance which is hard to get through the banks these days (or so it seems to me)...They keep pushing this Critical illness insurance which I find so offensive as a form of insurance.

[AmberLab]

I know I have mortgage insurance on my house. Not having any was not an option for us. We did the whole mortgage rigmarole though a mortgage broker, and took the life insurance option as well (as well as having life insurance through hubby's work).