Mortgage Life Insurance - Not Worth it!
A payment that is often overlooked by many that have mortgages is the sneaky little bugger known as the mortgage life insurance premium. If you were pressured into signing up for this emotionally, as most people are, don't feel as though you are alone.
The way mortgage life insurance works is it automatically pays off your mortgage in the event that you die. While on the surface this sounds good for your dependents, probing deeper you realize that this insurance can often cost upwards of $50 a month per 100K of mortgage principle.
If you do the math, you will find out very quickly that after 15 years, you've paid regular monthly insurance premiums and your mortgage may have been reduced to 25,000. While the principle has obviously dropped, the monthly premium has not. What does this mean? Well, when and if you die, it will generate a relatively small payout to your dependents or heirs. The other sad part is that you've lost the opportunity to invest that money.
So what can one do? What are the alternatives you ask? Well for one thing, you may be better off purchasing a term life insurance policy (I will discuss this insurance type in a future post) for about $100K and your heirs will receive that full amount regardless of the mortgage balance. Alternatively, you could take the mortage insurance payments and apply it as extra payments to your mortgage thus saving yourself some money on mortgage interest.
Either of these scenarios are better. Thanks again for reading Canadian Dollars.
The way mortgage life insurance works is it automatically pays off your mortgage in the event that you die. While on the surface this sounds good for your dependents, probing deeper you realize that this insurance can often cost upwards of $50 a month per 100K of mortgage principle.
If you do the math, you will find out very quickly that after 15 years, you've paid regular monthly insurance premiums and your mortgage may have been reduced to 25,000. While the principle has obviously dropped, the monthly premium has not. What does this mean? Well, when and if you die, it will generate a relatively small payout to your dependents or heirs. The other sad part is that you've lost the opportunity to invest that money.
So what can one do? What are the alternatives you ask? Well for one thing, you may be better off purchasing a term life insurance policy (I will discuss this insurance type in a future post) for about $100K and your heirs will receive that full amount regardless of the mortgage balance. Alternatively, you could take the mortage insurance payments and apply it as extra payments to your mortgage thus saving yourself some money on mortgage interest.
Either of these scenarios are better. Thanks again for reading Canadian Dollars.
Comments
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