mortgage protection Insurance?

tinyladyOctober 15, 2009

We just had a guy come out to give us a quote on this. The cost per month will be $360. It is not a term life but an Ins that will grow with dividends after 20 years and we can use this ins even if we move to another state. WE are now in our early 50's. My question would be is this wise and be stuck with a paymnet at this age and that we might not be able to pay later? or just put that amount to the mortgage and pay down the loan faster? If I add that amount to my mortgage I will have the mortgage paid off in 15 years rather than 30.What if we decide to retire and move, that paymnet will be the same no matter how much the new home cost, right?

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sushipup1

Such a policy is a waste of your money. If you need to buy insurance, buy a term policy for that amount. If you want to pay down your mortgage, do that. But mortgage insurance? Nope!

    Bookmark   October 15, 2009 at 10:06AM
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dave_donhoff

FURTHER, better to pay that money into a seperate "Mortgage Freedom" growth account, NOT directly into the mortgage. If you do so, it will be irretrievable in cases of hardship (the whole point of insurance,) and if you never have hardship, the money will grow on a compounding basis, which beats the simple interest savings of paying directly to the mortgage company even at the same interest rate.

THUS, without paying a dime more, you can actually eliminate the mortgage faster.

Luck!
Dave Donhoff
Leverage Planner

    Bookmark   October 15, 2009 at 11:13AM
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cmarlin20

I agree not to buy a mortgage insurance policy, wasted money.

    Bookmark   October 15, 2009 at 12:58PM
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jkom51

Actually, buying insurance for debt payoff, especially in the case of a dual-income family or death of the sole breadwinner, is a legitimate reason to need it.

However you would be better served by sticking to the 'plain vanilla' Level Term life insurance. Agents hate selling it because it pays them the least amount of commission. You can use one of those insurance websites to get a quote on Level Term (length of term is up to you; 15 yrs would be cheaper than 30 if you do a fast payoff on your mortgage). Or, you can just contact one of the excellent insurers who specialize in this type of insurance. Some of the better known companies are Transamerica, USAA, Met Life, and West Coast Life. They're all well-established in this specific marketplace and have rates pretty close to one another.

If you have any health issues, however, expect to be rated Standard or worse, rather than Preferred. And for goodness' sake, never ever lie to an insurer! They all subscribe to the Medical Information Bureau (MIB) and share medical information on applicants. Lying to an insurer is grounds for disallowing payment of benefits. It's surprising how many people try to get away with hiding their medical history. Trust me, it won't work!

    Bookmark   October 15, 2009 at 6:46PM
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tinylady

dave you totaly lost me with what you said.Can you translate that in lamens terms?....lol

    Bookmark   October 15, 2009 at 11:10PM
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ian_bc_north

My bank has been pushing me to buy an insurance policy from them which would make the mortgage payments in the case of disability or lay off. That of course protects them more than it does me. That bank got rather bruised in the recent financial crisis and seems to trying all sorts of tricks to generate extra revenue.

I believe that what Dave is trying to say is that you are better off putting the extra money, which you were considering putting on your mortgage, into some form of savings. When those savings get to be enough that you can pay off the mortgage all at once you can do so, if that is what you wish. In the meantime those savings can be dipped into in case of an emergency. If that money had been used to pay down the mortgage instead it could be very difficult to get some of it in the event of an emergency.
In my opinion the advisability of that strategy depends very much on one's personality and habits. If one is self disciplined it is an excellent strategy. If one tends to spend on impulse it can be a very poor strategy.

    Bookmark   October 16, 2009 at 12:57AM
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ian_bc_north

My bank has been pushing me to buy an insurance policy from them which would make the mortgage payments in the case of disability or lay off. That of course protects them more than it does me. That bank got rather bruised in the recent financial crisis and seems to trying all sorts of tricks to generate extra revenue.

I believe that what Dave is trying to say is that you are better off putting the extra money, which you were considering putting on your mortgage, into some form of savings. When those savings get to be enough that you can pay off the mortgage all at once you can do so, if that is what you wish. In the meantime those savings can be dipped into in case of an emergency. If that money had been used to pay down the mortgage instead it could be very difficult to get some of it in the event of an emergency.
In my opinion the advisability of that strategy depends very much on one's personality and habits. If one is self disciplined it is an excellent strategy. If one tends to spend on impulse it can be a very poor strategy.

    Bookmark   October 16, 2009 at 1:03AM
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dave_donhoff

Hi Tinylady,

dave you totaly lost me with what you said.Can you translate that in lamens terms?....lol

What Ian said, to a "T."

If the unexpected and unforeseeable realities of the exernal real world are your greatest risks... then "cash is king" and hold onto yours... keep it in safe growth accounts.

If YOU are your greatest risks, get your money OUT of your own hands as quickly as you can. Paying it to an irretrievable location (like your mortgage balance) is as out of the way & beyond reach as anything else, and despite the inherent risks at least you have a bit of a chance to keep it in your own net worth.

$50,000 in savings can be used for unemployment survival much MUCH longer than the incremental interest savings you might get by surrendering your cash to the mortgage bank. When left to grow in compounding accounts, it can also significantly out-earn the costs of the mortgage interest.

EVERYONE ought to have the elimination of their mortgage as a very high priority... HOWEVER, it should never be done a day nor a dollar earlier than its safest* point (which is when it can be done in a single check.)

(*Assumption being financial maturity, responsibility & basic discipline.)

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   October 16, 2009 at 4:59PM
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tinylady

I already have 2 funds besides my 401k that I put money in. One is what I call my house fund or emergency fund and the other is a vaction fund. After we spoke to the insurance man I got to thinking that if I do this, I will have to pay this money for ever even if we get into hard times or retire. That scares me. I would also have to cut my input of funds of my house account to pay this.

    Bookmark   October 17, 2009 at 9:55AM
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jkom51

It doesn't sound like you've investigated a simple term life insurance policy. I'm a Standard risk, not Preferred, and got a $500K policy at age 55 for $100/mo. Of course, if you can't afford it, then you can't.

The question to ask yourself, however, is why do you need insurance? Are you protecting the other spouse with income replacement? If this is the case, are you willing to bet that you won't die before the mortgage is paid off? What would happen to your spouse if you died - are there other assets that can be liquidated to enable your spouse to continue paying the mortgage?

You are looking at this situation the reverse of the way you should. There's nothing wrong with not choosing risk mitigation - as long as you are willing to bet your beneficiary's financial well-being will remain solvent even in a worst-case scenario. Everyone's tolerance for risk is different, as Dave rightfully likes to point out.

    Bookmark   October 17, 2009 at 5:28PM
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colorcrazy

Hi, Tinylady

"My question would be is this wise and be stuck with a payment at this age and that we might not be able to pay later? or just put that amount to the mortgage and pay down the loan faster? If I add that amount to my mortgage I will have the mortgage paid off in 15 years rather than 30."

I believe you answered your own question. Pay this much extra toward your mortgage principal every month. OR, if you feel that your other savings/investments are insufficient, put it into a relatively inaccessible bank account each month so you have to "think twice" before touching it.

If you don't have long term care insurance, you may want to look into that first. I've had it for years, and it is a relief to know that if I get injured or develop a disability, my health care is covered.

Just my two cents.

    Bookmark   October 17, 2009 at 5:59PM
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jkom51

I'm a big believer in LTC insurance, mind you - I've participated in some very spirited discussions about it. But I can't see that LTC insurance has anything to do with mortgage protection, especially in this situation?

No LTC policy in existence is going to give you money to pay your mortgage bill; most don't even cover more than 85% of licensed facility costs.

    Bookmark   October 18, 2009 at 3:42AM
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tinylady

I think after all the answers I have gotten and my taking time to really think about it. I have decided to call them and tell them that I have changed my mind. You wonder why I was thinking on doing this, well I was worried that the kids would be stuck with a mortgage if we both passed at the same time. But as my oldest son said, I will just sell it and my husband said he probably would not live here without me. So that tells me that even if one of us died the house would be sold anyway and we are not planning on being here till we die, much later I hope. We would like to move in the next 5 years and get something much less than what we have with less taxes. I know we cant retire in NJ with what I have in a IRA and 401k. The past few years have not been good for growth.
Thanks for the input. If you have more, I am open to new ideas on finance.

    Bookmark   October 18, 2009 at 9:21AM
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colorcrazy

Thanks, jknom51. Tinylady, I might owe you an explanation. My response was based on the impression that you were seeking ways to be more financially independent. Sorry if my LTC comment was off topic. Glad to hear that you talked with your son and decided against the mortgage insurance.

    Bookmark   October 18, 2009 at 12:28PM
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tinylady

Colorcrazy, there is no need to explain. Any and all information is welcome.

Thank You

    Bookmark   October 19, 2009 at 7:40AM
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jkom51

tinylady, in your shoes I would try to find a Registered Investment Advisor (RIA) who does financial planning on an hourly fee basis. Everyone's situation is utterly unique to them. An in-depth financial analysis would determine where you are, what are your goals, and whether you are on-track to achieve them. If you are not, then an advisor with fiduciary responsibility is obligated to discuss alternatives that are in your best interest, without pushing products that earn him/her $$.

Pls do contact your pension fund administrators or HR dept first, as some companies offer their employees low-cost or a free initial referral to a CFP for planning purposes. This referral service is becoming a popular benefit so see if it's available to you. CFP means Certified Financial Planner, which falls under the strict RIA classification.

If not, there are two member organizations of fee-only CFPs. I don't know of any for CPAs with PFS certification (another of the 4 certified titles that qualify as fiduciary-duty RIAs) but if you Google you may find an association that can refer you to such a person in your area. Depending on where you live it can be hard to find an RIA nearby who is fee-only.

There is a lot of misunderstanding about what financial planning is. It is a roadmap of where you are, an identification of your goals, and a plan on how to achieve those goals. Only RIAs are allowed to do true financial planning; any other title, no matter how fancy it sounds, can offer investment advice but NOT a true financial plan. A financial plan involves investing but that is not its sole purpose, although that may be most important to you at this time. It is not solely centered around retirement, but instead should focus on all aspects of your financial well-being.

This is something one could DIY, at least up to a point I can and have. But getting an objective opinion once in a while from a good RIA is something weÂve found worthwhile. We Âpiggy-back on a relativeÂs CFP and itÂs been very helpful to touch base annually.

The two fee-only CPA associations are:
NAPFA, the National Association of Personal Financial Advisors, is the nationÂs leading organization dedicated to the advancement of Fee-Only comprehensive financial planning. Website is http://www.napfa.org/

Garrett Planning Network is an international network of fee-only financial advisors and planners. Website is http://www.garrettplanningnetwork.com/

Below is a link to an excellent list of questions you should ask any advisor, on the CFP.net website. This website also has a search function for finding a CFP, but they are more geared towards asset-based mgmt CFPs (those who charge a percentage of portfolio assets, usually with a $250K minimum on investments) as opposed to fee-only CFPs.

Anyway, good luck to you going forward. I hope you are able to retire according to your plans! I've been retired since 2006 and we're counting the days down till my DH retires early next year.

    Bookmark   October 19, 2009 at 7:44PM
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