Friday, March 22, 2013

Mortgage insurance?!?! Are you STUPID?

As always, the financial industry provides so many FANTASTIC ways for people to spend their money and get nothing in return.  (Provided you're NOT a shareholder...  I am!)

What do I mean by this?  They have thousands upon thousands of "worker bees" working in the various branches, regional offices, call-centres, and of course the iconic shiny sky-scrapers in my home-town.  All of these people aren't working for free, so these banks and financial services companies have to pay the bills some how.

Where does this money come from?  You guessed it... YOU.

Now to the meat...  It's FANTASTIC business for a bank to sell you mortgage insurance.  You pay the premium, you pay your mortgage, AND if you die, fall ill, they claim the insurance on the loan.  Not you.  THEY keep the insurance claim.

The house gets paid off in full sure, but your estate and/or spouse and children are left holding the can.

Why is that horrible?  It's not entirely horrible but there is a MUCH better way to do.  But if you're the sole-provider for the family, then yes the house is paid off, but there's no longer income to pay for food, heat, water, electric, phone, internet, property taxes, repairs etc.

What crazy steps do I suggest?

Step 1:  CANCEL your mortgage insurance.  It's a waste of money with NO benefit.  You're paying your mortgage already so your debt is decreasing monthly/bi-weekly/whatever.

Step 2: Get yourself to an insurance broker and buy TERM life insurance to sufficiently cover the mortgage.  (In ADDITION to the policies you already hold to provide for your family in case of your untimely demise)

Why is this infinitely better?  Your estate/spouse/children/dog/goldfish will get the cash.  They can do with it as they please.  Sell the house, or stay with sufficient resources in their pocket to keep paying the mortgage.  Ideally they would invest the cash and use the resulting dividend/distribution income to pay the mortgage payments.  You will KEEP the capital gains from the holdings as well as any left-over dividends/distributions.  You will KEEP your house.  And a huge chunk of insurance payoff goes to YOU rather than to your bank.

Seriously too...  It's easy enough to buy/sell homes with a current mortgage.  You'll have the cash on hand to meet the monthly obligations and you can take your time deciding if you want to downsize, move-on, move-up, or continue to live in the house where now a big hole in your life now exists.

Yes, it requires more work on your part.  But it's a MUCH smarter move financially.

Stay hungry my friends!

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