Do You Have Smart Insurance?

On the flight back home yesterday, I read another sick, sad and totally unnecessary story of a family losing their home. But this one is different. A young family had a mortgage on their home and had mortgage life insurance. When the husband died during a traffic accident, financially, the wife and her son should have been OK. But that was not the case, simply because there’s mortgage life insurance in place.

Yes, there is a difference in insurance coverage for our debts. But it’s something most of us would rather not think about. When we do have to deal with it, in the event of a death or serious illness, it will always, always be too late.

One of the big debts most of us choose to insure is our mortgage. But it should never ever be mortgage life insurance.

That type of coverage is convenient, because we just sign up at our mortgage lender, but that coverage only pays off the balance of your mortgage. Essentially, it protects the lender so they get paid, it does not protect the family by giving them any financial freedom, or breathing room with other bills. It’ll give your family a free and clear home, but what good does that do when they have to sell the house right away to raise money for other bills, debts or financial needs?

A much less expensive, and way more flexible policy, is to get an equal amount of term insurance. It’s also for a fixed period of time but now lets your family decide what to do with the money and not the lender. The money is paid to your family. Sure they might pay off the mortgage, but that should be their choice not that of the lender.

What happened to this family in Illinois is that their home was paid off, but they were now forced to sell it to have any money at all to live on. You can bet that was not what the plan was when they paid the overpriced premiums for all those years, thinking they were protected.

Another common insurance for loans is optional accident and sickness insurance. Yes, it’s ALWAYS optional. If you were told different, you were lied to – simple as that.

Most of these policies have a 90-day elimination period. Elimination means it starts on day 91 – long after most short-term accidents or illnesses are over. This puts you three months behind on your payments and will not pay out a dime. But they are the least expensive, since they don’t cover the first three months at all.

Something called a retro policy means the coverage is retroactive to the first day you were off work. There is a big difference. The time to discover it is NOT when you have no income and no chance of making a claim.

As with anything else, ask the questions, get informed, and get the “what if” answered before signing on the bottom line.

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