Don’t Make This Costly Mistake! The Insurance Switch Everyone Should Consider Right Now!

Choosing between term insurance and mortgage insurance requires careful consideration of your financial goals and protection needs. Here are five excellent reasons to consider term insurance over mortgage insurance.

The importance of securing your home and loved ones is obviously one of the bigger decisions you will make along your financial journey. The choice between Term and Mortgage Insurance is pivotal, with far-reaching effects on your financial stability.

In this easy-to-follow guide, we break down the pros and cons of each choice, offering straightforward insights and practical suggestions for homeowners. Join us as we simplify the decision-making process, ensuring you have the knowledge you need to protect your home and family.

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It was Easier, Just a Checkmark on the Loan App…

Many individuals opt for mortgage insurance when securing a home loan due to its convenience and ease of approval during the mortgage application process. However, a term policy from a reputable insurer often offers superior advantages. While mortgage insurance may seem convenient, it comes with limitations, including decreasing coverage over time and a lack of flexibility in adjusting the coverage amount.

Term policies allow for greater customization, providing coverage beyond the mortgage and offering a fixed amount throughout the term. Moreover, term insurance policies are often more cost-effective, with lower premiums compared to mortgage insurance. Despite the convenience of mortgage insurance, savvy homeowners increasingly recognize the value of a well-structured term policy from a reputable insurer, which not only ensures comprehensive protection for their families but also offers financial flexibility and potentially significant cost savings in the long run.

I Know what YOU Like, But Let ME See the Pros and Cons…

Fair Enough.

Personally, I strongly advocate for the benefits of choosing a term policy over mortgage insurance when safeguarding one’s home and family. The flexibility, portability, and customizable coverage that term insurance provides align more closely with the dynamic needs of homeowners.

However, making an informed decision based on individual circumstances is crucial. A seasoned investment advisor or portfolio manager can be instrumental in making sound financial decisions, extending their expertise beyond just optimizing returns.

Here are five pros and cons to consider for each option:

Term Insurance:

Pros:

1. Flexibility: Term insurance provides flexibility in choosing the coverage term, allowing you to align it with specific financial obligations, such as mortgage duration or other life events.
2. Portability: If you switch lenders or refinance, your term insurance policy is typically portable, ensuring continuous coverage without the need for reapplication.
3. Beneficiary Control: You have the freedom to choose any beneficiary, providing the payout flexibility to cover not only the mortgage but also other financial needs like education expenses or income replacement.
4. Cost-Effectiveness: Term insurance premiums are often lower than mortgage insurance premiums, especially considering that the coverage amount remains constant throughout the term.
5. Coverage Amount: The coverage amount is not tied to the mortgage balance, allowing you to select an amount that adequately covers your family’s financial needs beyond just the mortgage.

Cons:

1. No Cash Value: Term insurance does not accumulate cash value over time, meaning you won’t receive any return on investment if you don’t make a claim during the term.
2. Premium Increases: If you decide to renew the policy after the initial term, premiums may increase, potentially becoming more expensive as you age.
3. Lapse Risk: If you don’t renew the policy or let it lapse, you lose coverage, and any paid premiums are not refunded.
4. Underwriting Process: Term insurance typically involves a more detailed underwriting process, which could result in higher premiums for individuals with health issues.
5. Unused Premiums: If you outlive the policy and don’t make a claim, you won’t receive any benefits, and the premiums paid may seem like an ‘unused’ expense.

Mortgage Insurance:

Pros:

1. Simplified Underwriting: Mortgage insurance often involves a simplified underwriting process at the time of application, making it far easier to obtain coverage.
2. Convenience: The insurance is directly tied to the mortgage, offering a streamlined process, with premiums often included in your mortgage payments.
3. Automatic Approval: Mortgage insurance is typically approved automatically during the mortgage application process, avoiding the need for a separate underwriting evaluation.
4. Immediate Payout: In the event of the insured’s death, the payout goes directly to the mortgage lender, ensuring that the mortgage is paid off immediately, relieving the financial burden on the family.
5. Coverage for Joint Mortgages: Mortgage insurance often provides coverage for joint mortgages, ensuring both partners are protected under the same policy.

Cons:

1. Decreasing Coverage: The coverage amount decreases as the mortgage balance decreases, providing less protection over time.
2. Limited Beneficiary Options: The mortgage lender is usually the beneficiary, limiting the use of the funds solely to pay off the mortgage.
3. Fixed Premiums: Premiums may remain fixed even as the mortgage balance decreases, making it potentially more expensive for the coverage provided.
4. No Flexibility in Coverage Amount: You can’t adjust the coverage amount to accommodate additional financial needs beyond the mortgage.
5. Lack of Portability: If you switch lenders or refinance, you may lose coverage and have to reapply, potentially facing higher premiums based on age or health changes.

This is one area where an investment advisor portfolio manager can be instrumental in making sound financial decisions, extending their expertise beyond just optimizing returns on your investments. When it comes to choices like selecting insurance, they offer valuable insights tailored to your unique situation. These professionals assess your entire financial landscape, ensuring that insurance decisions align with your goals.

The choice between securing insurance through a dedicated provider versus opting for mortgage insurance through your bank is a decision that holds some profound implications. While the convenience of mortgage insurance may be tempting, a closer examination usually reveals the superior advantages offered by insurance from dedicated providers. A term policy, with its flexibility, portability, and customizable coverage, usually emerges as a more tailored and cost-effective solution. Partnering with a reputable insurer not only provides comprehensive protection for your home and family but also aligns with the dynamic nature of your financial needs. By making this strategic choice, you can gain not only peace of mind but also the flexibility to adapt your coverage as life evolves. Ultimately, when it comes to safeguarding what matters most, choosing a dedicated insurance provider through an investment advisor portfolio manager licensed to do insurance, can prove to be the key to a resilient and adaptable financial future.

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Joe A. Macek, FMA, CIM, DMS, FCSI

Investment Advisor, Portfolio Manager

iA Private Wealth | iA Private Wealth USA

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