The Ramblings of a Title Man

Life insurance equals new revenue source

If you have ever purchased a home, you know what happens after you close… your mailbox is inundated with mail about different services – roofing repair, home remodeling, lawn maintenance, you name it.?I even got a mailer once from a private trash company after buying a new home.?A trash company; go figure!?If you read those advertisements, you may have noticed that one of the services most often advertised after you buy a home is credit life insurance.?This type of insurance is misunderstood and may invoke as much confusion as title insurance.?Let me explain how it works.

Credit life insurance is a type of insurance policy in which the beneficiary is a lender that the policyholder owes money to. Most often, this is a mortgage lender on a residential mortgage.?This means that if you get a credit life insurance policy on your loan and you die with an outstanding balance, the death benefit can only be used to pay off the balance of the loan.?Here is an example of how credit life insurance works. This example illustrates how this type of insurance is less desirable than traditional term life insurance.?Let’s take a typical $300,000 home purchase, with a $280,000 mortgage.?Financed over 30 years, at 6% interest, the payments on this loan may be $1,679.00 before tax or homeowners’ insurance escrows.?A credit life insurance policy would be written for the loan balance of $280,000, providing that during the term of the loan, the balance would be paid if the insured died.?But what is not taken into account is that the credit life insurance policy is a declining coverage type policy.?Let’s say our example loan has a death take place after 15 years.?In those 15 years, the mortgage balance has been paid down to about $198,936.00.?The credit life insurance policy would pay just the outstanding loan balance - $198,936.00.?

Term life insurance works differently.?The insured can buy a policy with a death benefit of $280,000.?If the same scenario happened 15 years into the life of the mortgage, the death benefit of a term life policy would be $280,000. The insured could pay off their mortgage of $198,936.00 and still have $81,000 left over to cover other expenses and lost income.?Simply put, a term life insurance policy is a level benefit policy for the guaranteed term of the policy.?A credit life insurance policy is a declining benefit policy in which the payout available declines each year the mortgage balance is paid down.?

Now, here is the next big secret in the term life insurance market.?Commissions on selling term life insurance are usually structured as a very high, upfront commission for selling the policy, and a very low or no commission in subsequent years after the policy is renewed.?Some title insurance agents have ventured into the market of selling life insurance.?In some instances, this has added as much as $400-$800 additional revenue per file, with little or no administration cost.?Doing so does require obtaining a license as a life insurance agent under state insurance laws, but you can easily obtain that after a self- study course.?

There are also companies who specialize in handling the quoting, administration of policies and billing for you.?One such company is Mazi Life Insurance from Rhode Island.?They work in all 50 states and can basically build you a plug n play system to offer term life insurance to your customers at the closing table.?Find them at https://www.mazilifeinsurance.com/

In an ever tighter real estate market and with costs on the rise, as title agents look to find new revenue streams, life insurance may be a key addition to your company.?Most importantly, providing good information to consumers on the critical difference between credit life insurance and term life insurance and how the benefits work may someday help protect a home buyer from catastrophic loss and help their family recover.?