You may have received letters from your lender, but they could be from someone else if you recently bought a house or refinanced your mortgage.
These solicitations come from Mortgage Protection companies, who paid good money for public records searches to locate you. Is Mortgage protection really necessary? The answer is “Yes” and “No.” This may seem contradictory but bear with me.
First, you need to understand that Mortgage Protection (also known as Mortgage Protection Insurance) does not relate to mortgage insurance. This is the most confusing misnomer.
Mortgage Insurance is a fee charged by the lender to cover you in the event of default. You can avoid MI by making a minimum 20% down payment. If you are able to provide enough protection for your skin, the lender will not typically require MI.
They will charge you a MI fee if you don’t have the funds to pay. This is added to your monthly payments. If you default on your loan the MI fee you have been paying will be used to help the lender recover the amount owed. MI is not beneficial to you, the borrower.
Mortgage Protection is, however, for you, the borrower. Mortgage Protection will keep you afloat in the event of unforeseen circumstances that make it impossible to pay your mortgage.
Second, remember that mortgage protection is life insurance designed to cover the entire loan term. No matter how many bells and whistles the plan may offer, all Mortgage Protection plans are life insurance contracts.
*If you have a small mortgage balance, carry adequate permanent insurance with cash availability.
* If you have the resources to pull substantial amounts of money from
If you answer “No”, then you can likely forgo Mortgage Protection insurance.
However, mortgage protection is required if you are in the 97% of Americans who fall under this category.
* You do not have the principal balance of your loan lying around.
* If your income would be affected by a temporary or reduced loss
* If you are unable to make the mortgage payments alone and are dependent upon them.
Do not listen to anyone who will not be there to assist you in these kinds of situations. I have read incoherent writings suggesting that $200 be taken and put into a safe investment to earn a higher return over a certain period.
This is absurd. It is not about how much you can make by investing the premiums you have paid. If you have ever been in an accident, or suffered water damage to your home, the claim adjuster should have sent you a check. I am sure that you didn’t complain about not being able get the same amount elsewhere if you had saved it.
It doesn’t take genius to realize that insurance is the most affordable money you can purchase. You can immediately secure a 1/2 million-dollar benefit by paying a monthly premium that is lower than most cell phone plans. As they say, “You can’t beat a bat!”
Let’s review: Mortgage Protection is a must for most people with a mortgage. This protection should be considered especially in the first 15 years, when you have the lowest equity and your expenses are increasing.
