Expect the Unexpected…

If I told you to do what you love and love what you do and spend 99.9% of your time doing so you would understand that statement as it applies to your life. Some would call it the simple life. But I recommend that you commit 0.1% of your time to plan for the unexpected, especially as you move towards some big milestones like marriage, home ownership and kids. That is when term life insurance, a type of policy that covers you for a specific length of time, can really make sense.

Don’t hesitate to call or email us for your best options when thinking about your family’s financial security.

Henley Financial & Wealth Manangement  

 

Newlyweds with debt

You are marring the person of your dreams the person that you want to share your future with. But does your future include a term life insurance policy. Here is one reason why you might want to consider buying it now:

Debt.

Insurance is designed to protect you from unknown at death. Many young people start their marriages with a significant amount of debt. It could be a disastrous if only one spouse remained to cover the payments. Say you want to cover $100,000 in debt. You can get a term life insurance policy to cover it for pennies on dollar a year, which is most likely less than you spend on coffee for the year.

Another scenario where term life insurance makes sense is when there is a big disparity in income. Insuring the difference means that if the higher income person dies, the lower income person can support their current cost of living while they rebuild his or her life.

For a newly wed couple Life insurance is something you should have. Hopefully you never need to use the benefit. You can feel good knowing that if something catastrophic was to happen your spouse is covered.

Buying your first home together

There’s “married” living the dream travelling doing what you want when you want, with no obligations. And then there’s “married with a mortgage,more debt and kids.” It’s an exciting step, a new home a place you call your own. But it also presents new risk. If one of you were to die, how would the surviving spouse manage the mortgage payments? This is when and why you buy a mortgage insurance at the bank (or they tell you that you have to purchase insurance through them). The better option is to buy a term life policy from your advisor or an insurance company, for a few reasons.

First, Term life is less expensive than mortgage insurance. Second, The payout on death benefit with term life doesn’t change, but on mortgage insurance it declines as you pay down the principal. Third, Mortgage life insurance has no flexibility meaning there is a face value policy limit and it isn’t transferable, so the policy will be cancelled if you move or become terminally ill before your mortgage is renewed.

Getting married and starting a family

There are a few things you are going to need if you’re expecting a baby. A completed baby room with the right crib, dresser, and a car seat plus all the other must haves. Oh yes you will have all the latest things needed to insure that your child is well looked after. I know this might sound morbid but at the same time you’re anticipating a new life beginning, and this is important. If you die, you want to make sure that your dependents are covered. Term life is a good short-term solution for a new family. The question is, how much do you need? The payout should cover your mortgage and replace a loss of income. How much you will need depends on the conversation you and your financial advisor have when you discuss this section of your family’s financial security.

 

Which is better: Term life or mortgage insurance?

 

You’ve just made the biggest purchase of your life:  A new home for you and your family.

What’s the best way to protect your investment if you should die prematurely?  The bank will tell you mortgage insurance.

The banks will not let you sign off on the mortgage unless you take out mortgage insurance which pays the balance of your mortgage to the bank if a person listed on the mortgage passes away.  Unfortunately, this is not done out of concern for the buyer, the banks are in the business of making money and they have tied the sale to the mortgage.  You are expected to purchase this insurance when you sign your mortgage papers.  Mortgage insurance is offered by the bank and typically involves answering a few basic health questions. They even add the premiums to your monthly mortgage payments for simplicity.

But that convenience could be costly.

The most important thing to remember about mortgage insurance is that even though you are paying the premiums, you’re not necessarily covered. These policies use post-claim underwriting, meaning that the insurance company will delve into your medical history after a claim is made.  The policies are post- claim generally because the financial planner that sets up your mortgage is not qualified to sell the insurance.  They are the middlemen for an insurance company.  You will be issued a certificate of insurability.

If you have a health condition when you sign the papers — whether you and your doctor are aware of it or not — and it is not disclosed, your claim will be denied.

This means, even though you have been paying the premiums, no benefits will be paid.  This happens more often than not, as the underwriting after death generally will show the cause of death as reason to be uninsurable. That does not seem like a good deal for a grieving family that thought they were covered.

There are key differences between mortgage and term life insurance. 

Although mortgage insurance benefits pays out only the amount left owing on your mortgage if you die, the amount of coverage declines as you pay down that balance every month. Unfortunately, your premiums stay the same and will increase, as you get older because you need to reapply for the insurance every time you renew your mortgage. If for some reason in that span of time, you find yourself with health problems you are no longer eligible for mortgage insurance.

So your mortgage decreases as the years go by while paying more for something that’s not guaranteed, you’re paying a higher premium and getting less.

Term life insurance is just that — an insurance policy that covers you for a set number of years, typically 10 to 30 years. The premiums, and the amount that your beneficiaries receive if you die, will stay the same through the life of the policy. As long as you continue to make the payments the policy will remain in place.

The other key difference: Your family receives the payout and decides what to do with it. Some people view that as a benefit because the family may be looking at alternatives, rather than paying off the mortgage. They may have other high-cost debts they want to put the money towards.

When purchasing term insurance, you may need a blood sample or urine sample upfront, and the insurance company may need to contact your doctor. This is part of the underwriting process, depending on your age and health, the premiums on mortgage life insurance can be much higher than for a term life insurance policy.

For example, a couple where both partners are 30 would pay $36 per month on mortgage insurance premiums for 5 years, but they would pay $24.53 a month on a 10-year term life policy. The difference becomes more pronounced with age. Two 40-year-olds would pay $80 per month for mortgage insurance but just $36 for a term policy. Two 50-year-olds would pay $160 for mortgage insurance, but only $73.35 for term life.

Keep in mind that mortgage insurance is not portable. If you switch lenders, you’ll need to take out a new policy. Term life insurance is portable, because it’s attached to you rather than your debt. You can decline mortgage insurance if you already have personal life insurance in place.

The key thing to remember is that you should be covered because as we know anything in life can happen.  Family security should be part of your financial planning don’t take a chance when dealing with your families future. The choice is always yours, if you have to sign up for the mortgage insurance at the bank you can cancel it at any time, but purchase term life coverage to cover your debts.