Mortgage disability insurance

Submitted by Anonymous (not verified) on Tue, 08/31/2010 - 08:47

I just wanted to make sure that my family members don't face any problems with our home even when I'm not there. So I got this mortgage life insurance. Now, the agent has come up with another offer - mortgage disability insurance. Is it really that important to us?

Posted: 31 Aug 2010 02:29 Post Subject:

If you are healthy, you shouldn't have mortgage life insurance. A fully underwriten level term policy should be a much better value.

The same concep applies with disability coverage.

Posted: 01 Sep 2010 01:18 Post Subject:

Life insurance to cover just the value of a mortgage is fine. But it may be inadequate for the other needs of your survivors in the event of your premature death. As I teach this topic in my classes, just because the mortgage is paid off, the other expenses of homeownership do not end.

There will always be property taxes, property insurance, utilities, maintenance and repairs, not to mention food and clothing for children, income for a spouse, education funding, emergency funds, and money to pay off other debt -- student loans, car loans, credit cards, a second mortgage, who knows what else, but you?

Mortgage insurance will not do that. A more substantial term or cash value policy might be a better choice, with the term policy being less expensive. You could obtain a disability income rider from some companies instead of having to pay for a separate disability income policy.

Mortgage disability insurance is particularly suspect from the perspective that although your mortgage payments will be made if your disability lasts long enough to qualify for the benefit, but what about your other lost income needs? Food, clothing, utilities, taxes, etc. It won't pay for that. I'm guessing that an honest-to-goodness 60%-of-pretax-wage disability policy will provide most of the money you need to meet your monthly expenses, including the mortgage.

I think I see an agent with $$ in his eyes . . . commissions at your expense.

Posted: 01 Sep 2010 07:30 Post Subject:

A fully underwriten level term policy should be a much better value.



Can you describe in brief what you mean by this fully underwritten level term policy?

Posted: 01 Sep 2010 07:49 Post Subject:

I'm healthy, so is this mortgage life policy an unnecessary expense for me? Also would like to mention that I've a car loan, but no credit card debts nor any second mortgage!

Posted: 01 Sep 2010 04:03 Post Subject:

Well i think if you are keeping all the holes covered then you can opt to go for the mortgage disability insurance because it may turn out to be vital if you become unable to move and go for work due to some accident or illness.
If you can easily afford it then go for it.

Posted: 01 Sep 2010 09:41 Post Subject:

Can you describe in brief what you mean by this fully underwritten level term policy?



Life insurance that can be used for any purpose. The death benefit will stay level instead of decreasing over time. The premium should be much less expensive per dollar of coverage.

I'm healthy, so is this mortgage life policy an unnecessary expense for me? Also would like to mention that I've a car loan, but no credit card debts nor any second mortgage!



Did God tell you when and how you are going to die? If he did, it is an unnecessary expense. Otherwise, life insurance is needed if you have someone to protect. Life insurance is needed and not mortgage life insurance.

Posted: 01 Sep 2010 09:42 Post Subject:

Mortgage disability coverage has terrible contractual terms. If one needs to protect their income, start by finding a reputable agent.

Posted: 02 Sep 2010 05:10 Post Subject:

If one needs to protect their income, start by finding a reputable agent.



Words of wisdom. Too bad they can't be posted in gold, because they're worth their weight in that metal.

Posted: 02 Sep 2010 05:15 Post Subject:

Well i think if you are keeping all the holes covered then you can opt to go for the mortgage disability insurance because it may turn out to be vital if you become unable to move and go for work due to some accident or illness.



On the other hand, ill advice such as this can lead to irreparable harm.

Mortgage disability insurance, as I posted prior to this comment, may make the monthly payment on the loan, but it's not going to put food on the table, keep the lights on, or the home warm in the dead of winter.

If one is truly concerned about the need to (1) pay off a mortgage in the event of death or (2) sustain one's income in the event of a disability, then something other than "mortgage" life or disability policies are the proper prescription.

Better to proceed at full speed than to go about covering the challenges in life half-fast.

Posted: 02 Sep 2010 11:36 Post Subject:

Max,

This was what i was stressing at, it is certainly not provide you food but if you are earning well enough and are so much concerned about what will happen to your mortgage on the event of disability then you can think about buying that insurance policy.

Of course its better to get insured for your untimely death.

Posted: 02 Sep 2010 04:01 Post Subject:

if you are earning well enough and are so much concerned about what will happen to your mortgage on the event of disability then you can think about buying that insurance policy.



You are missing the entire point, and I think it's because you don't understand insurance products well enough.

"Earning well enough" stops when the disability occurs. How will the other expenses of life be paid for when the income stops because the person is disabled? Your naivete on this aspect of disability is glaring.

I would be more concerned about caring for my family's entire needs than simply paying the monthly mortgage payment. And that's what I communicate to my clients.

Same is true when it comes to death. Pay off all the debts, yes, but also leave additional resources for the family to draw upon.

Posted: 02 Sep 2010 10:08 Post Subject:

Of course its better to get insured for your untimely death.



Why? One's odds of dying during their working lifetime are less than their chance of becoming disabled.

Posted: 03 Sep 2010 07:01 Post Subject:

Why? One's odds of dying during their working lifetime are less than their chance of becoming disabled.


True, but then think of the risks too. Even when you're partially disabled you may qualify for certain professions. Also, you'd be there to support your family with guidance.

On the other hand, when you're not there you family might come across hardships.

Posted: 03 Sep 2010 12:02 Post Subject:

Max,

Thats right i am not as well aware as you are about different insurance products.
But then happens to the mortgage if the person becomes disabled and is not able to work?How to best cover that, will just disability insurance be enough?
I completely agree that one should strive to earn as much so that on an event of death you leave behind enough to pay off debts and some extra for your family to live off it.

Posted: 04 Sep 2010 11:53 Post Subject:

But then happens to the mortgage if the person becomes disabled and is not able to work?


If he has PMI (Private mortgage insurance), then there shouldn't be any reason for him to worry. The lender will then be compensated. Disability insurance is used to compensate for the lost wages I guess!

Posted: 05 Sep 2010 01:30 Post Subject:

Steven, if one becomes disabled, their family doesn't need guidance, they need money. If one is working because they need their income, they should be attempting to protect that income if they get sick or hurt and can't work.

But then happens to the mortgage if the person becomes disabled and is not able to work?How to best cover that, will just disability insurance be enough?



What happens is the mortgage doesn't get paid and the family is in trouble. If enough disability insurance is purchased, the family should be in fine financial shape.

If he has PMI (Private mortgage insurance), then there shouldn't be any reason for him to worry. The lender will then be compensated.


Huh? PMI protects the lender to a small degree. It does nothing to protect the homeowner. The fact that the owner has paid for PMI does not relieve him of the obligation to pay the debt. PMI isn’t going to stop the bank from foreclosing on the homeowner. The only benefit of PMI to the homeowner is that it will allow the purchase of a house without a 20% downpayment.

Posted: 05 Sep 2010 01:33 Post Subject:

Let's make the subject of disability insurance as simple as possible. Jim has two job offers. Job A pays him $50,000. Job B pays him $49,000. With Job A, if he becomes sick or injured and can't work, his income stops. With Job B, if he becomes sick or injured and can't work, his income continues.

Buying disability insurance is the equivalent to choosing Job B. It's obviously more complicated than that, but from a conceptual standpoint, that's it in a nutshell.

Posted: 06 Sep 2010 05:27 Post Subject:

It's obviously more complicated than that, but from a conceptual standpoint, that's it in a nutshell.


It's could be a tough decision at times. Jim then has to take into account all the risk factors associated with his current job, and then decide whether to go for the option B.

Posted: 06 Sep 2010 01:00 Post Subject:

Two things.

If he has PMI (Private mortgage insurance), then there shouldn't be any reason for him to worry. The lender will then be compensated.



Juanita . . . turn in your moderator's credentials. PMI provides no benefit at all to the person making the mortgage payments -- healthy or disabled -- and, thus, paying the PMI premium. PMI is only a protection for the lender if the loan defaults and the lender cannot recover all its costs to dispose of the property.

It's not much different than you coming to me to buy life insurance, agreeing to make the payments, and I am the irrevocable beneficiary. What benefit does that provide to you or anyone you love?

Second,

It's could be a tough decision at times. Jim then has to take into account all the risk factors associated with his current job, and then decide whether to go for the option B.



Steven, you seem to be missing the whole concept of disability insurance, and this is just making it worse.

It's not about choosing "Option A" or "Option B". It has nothing to do with which job has more or less risk. That example was a pretty good picture, and you missed it entirely. It might be said that your camera is turned on, but there's no film inside.

Disability insurance is PAYCHECK PROTECTION. If you cannot work, the money you count on to fund the other aspects of your life -- paying the mortgage, putting the food on the table, keeping the kids clothed, and so very much more -- will stop when you stop working.

Unless you have a disability income policy. Then, assuming you meet the definition of disability ("own" or "any" occupation), and are disabled the required minimum number of days (the "elimination period"), then you will begin receiving a monthly income (usually 60% or 70% of your pretax wage) for as long as the policy provides its benefit (could be a few months, a couple of years, to age 65, or even lifetime).

The original post was about mortgage disability protection. That's fine, if the only thing a person needs to be concerned about is paying the mortgage. But it's woefully insufficient, if the other expense of life are still hanging out to be paid.

And . . . I've never seen a mortgage disability policy that uses the "own occupation" definition. Meaning, you might not qualify for a benefit, even though disabled, if the insurance company thinks there is something you can do to earn about the same amount of money as your policy would pay.

Posted: 07 Sep 2010 03:01 Post Subject:

Chatter on folks, but let's just get to the real solution for the OP.

Based on what was written originally, I'm thinking the OP was doing business with an agent who was trained in the art of selling insurance specifically to a very easily identifiable need. There is nothing wrong with this approach. Could be a tad on the lite side of coverage overall, but it gets the job done. The agent then proposed using disability insurance for the same reason. This was a more common approach to disability insurance sales years ago (as a product it has stiffen up quite a bit). In fact, there were some companies that offered a disability product that was sort of an add-on sale to a life insurance purchase that could be used for exactly this purpose. (Note other agents: don't confuse this with waiver of premium rider, it's a completely different thing).

So now the agent has made two sales for two different products and used one focal point of the OP's life to make those purchases seem important. It's a sales strategy. And please do not misunderstand. I do not make that comment to demean the importance or suggest a purchase should not take place.

In sum, to answer the original question which was (I'll paraphrase): is it really that important to have disability insurance that would make my mortgage payments? And my answer is that entirely depends. It depends on if you want to live in the house if you become sick or hurt and cannot work, or if moving in with the mom and dad or the in-laws is more your definition of a good time.

Posted: 07 Sep 2010 06:02 Post Subject:

So now the agent has made two sales for two different products and used one focal point of the OP's life to make those purchases seem important. It's a sales strategy.



And maybe next the agent will come back with a mortgage accidental death policy, as part of the sales strategy. And then an accident-only, hospital-only indemnity policy. And later add an at-home benefit for sickness. This is exactly why people get to the saturation point -- and believe they are being premiumed to death.

There's no doubt that many people could benefit from having "mortgage-only" life/disability coverage, compared to nothing at all. But if no agent has ever explored the concept of covering all/most of a person's total need with proper amounts of insurance, then the insured may be under the impression that the insurance will do more for him/her/heirs than the policy provides.

It's a sales strategy



Maybe so, but it's not one that I would use.

It's sort of like the whole mortgage mess that derailed the economy -- like the mortgage broker saying to folks, "OK, so you really want to live in a home that you can't afford. I can appreciate that -- I live in one like that, too. So here's what we'll do, we'll start you with a 1% note for 30 years, due in 12 months -- that way the payments are really low, and you'll qualify for the loan. A year from now, the payments will go up some, but we'll come back and refinance your loan for free, so you won't have to pay all the closing costs again. And with real estate values going up all the time, why you'll have great equity and that will lower your interest rate."

Sales strategy . . . sounds good in theory, and worked for a few years, but is just about 100% BS. And now the rest of us are paying the price for that.

We don't see "sales strategies" in homeowner's insurance that say, "Well, let's get started with 80% coverage, and in a year or so, we'll increase it to 90%, and once you get used to that, we can go ahead and increase it to the full 100%."

I acknowledged in my first response that there wasn't anything wrong with mortgage life or disability coverage. My concern was for the OP to understand that he needs to look at the big picture and evaluate what his true needs are and make sure those are covered. If he doesn't need the additional income a DI policy might provide, fine, then he doesn't need it. An agent with a "sales strategy" may also have a commission-perspective rather than a coverage-perspective, and the sales presentation could be rather myopic.

But if the vast majority of people with DI insurance had that kind of coverage (to pay only the loan payments), they'd be very sorry they didn't buy more complete coverage . . . as they're being displaced for other reasons for which money would have been the answer.

Posted: 07 Sep 2010 10:18 Post Subject:

It's a fine sales strategy if someone's job title is "mortgage disability salesman". It's a terrible purchase strategy for a person looking for protection. It's a terrible sales strategy for an insurance agent who is truly trying to do what is best for his clients.

Posted: 13 Sep 2010 03:08 Post Subject:

It's a terrible purchase strategy for a person looking for protection. It's a terrible sales strategy for an insurance agent who is truly trying to do what is best for his clients.



Exactly. Just fewer words than I used.

Posted: 21 Dec 2011 10:57 Post Subject: Mortgage Murfreesboro

am working on a report in which all the banks giving loan for mortgage and in case of no return payment they made some hard decisions. What do you think about it? Is it right to not getting mortgage and vacate the house and take everything from the person..

Posted: 05 Jan 2012 11:48 Post Subject: mortgage chattanooga

Nowadays managing money is such a difficult task especially when you have limited income and unlimited expenses. In this case either you should cut down your expenses or you should find someone to give you money! If nothing as such happens, you will find yourself in trouble.

Posted: 17 Sep 2012 08:30 Post Subject: Disability and homeownership

I have been on disability since 2009 and cannot work. I would really like to buy the home I am renting, having actually begun the process, and I will be able to. My concern is this: Will the government have any claim to my home in the event that I die before it is paid off (which is almost certain because of my disability), or can the mortgage be transferred to my kids? Both of my sons have said they would willingly take over the payments and keep the house if I died, yet neither of them have good enough credit that I would qualify using them as a co-signer.

Posted: 19 Sep 2012 12:37 Post Subject:

The home will be a "recoverable" asset in the event you receive assistance for your health care expenses, including long term care, from MEDICAID, but not Social Security Retirement or Disability benefits.

Social Security Retirement and Disability benefits (and even SSI payments) are "non-recourse" payments -- the government will not come looking to recover that money.

If your concern is losing the property after your death, then don't "own" it in the first place. Put it into an irrevocable trust or title it in the names of your sons and pay the mortgage payments (up to $13,000 each per year) as "gifts" to your sons. If you are married, you and your spouse could each gift $13,000 -- $26,000 combined -- to each of your sons, for a total of $52,000 per year to both.

Not only does that escape gift taxes, it reduces your taxable estate -- and estate taxes will be coming back in a big way in 2013 if Congress fails to act in the remaining 13 weeks of 2012.

Talk with an estate-planning attorney and/or CPA for more information about this. If you do it right from Day One, you will avoid any estate tax liability on the value of the home, if any,

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