Mortgage or Loan Insurance

Mortgage, operating line, and loan insurance all serve the same purpose.  They are meant to pay off debt in the event that policy holder passes away.  There are some key differences though between purchasing insurance through your lending institution versus purchasing it through a Total Financial Solutions advisor.

First of all there is the issue of ownership.  When you purchase insurance through a lending institution, typically they own the insurance.  This means that you are not able to make changes to the policy or take it with you if you decide to change lending institutions.  When you purchase insurance through a TFS advisor, you own the insurance.  This means that you are able to keep it as long as you continue to pay the premiums.

Secondly is the issue of beneficiary designation.  When you purchase insurance to cover your loans through the lending institution, typically they are the beneficiary.  Whereas when you purchase insurance through TFS, you can decide who you would like the beneficiary to be.  This means that instead of the lending institution being paid first, your family can be paid first.  Then they can have the choice if they would like to pay off the mortgage right away or pay for other costs of living.

Thirdly is the issue of when medical underwriting is done.  With insurance purchased through lending institutions the medical underwriting is done at claim time.  This means that if you are currently unhealthy or there is any reason why you wouldn’t regularly be insured then they don’t have to pay your claim.  On the other hand, insurance purchased through a TFS advisor is underwritten at time of application.  This means that once you have your insurance in place, the insurance company can’t take it away from you for health problems that develop later in life.

Lastly, insurance purchased through a lending institution is typically declining insurance.  What does this mean?  For example, let’s say you purchase a home for $400,000 and you get mortgage insurance on that $400,000.  Because the mortgage is for $400,000 you will be paying premiums for $400,000 of insurance.  But what happens when in a few years from now when you only owe $200,000 on your mortgage?  If you passed away at this point the $200,000 mortgage would be paid off, but the extra $200,000 of insurance you’ve been paying for won’t be paid out.  It doesn’t get paid to your beneficiaries or to the lending institution.

These are only some of the reasons you may want to talk to a Total Financial Solutions advisor about your mortgage, operating line, and loan insurance to see if it is the right type of insurance for you.