YOUR MONEY > Ask the Expert
NEW YORK (CNN/Money) - I am being offered mortgage protection insurance. Is it worth the cost?
Think twice before buying into one of the many pitches for different insurance products.
December 19, 2003: 9:31 AM EST
By Walter Updegrave, CNN/Money Contributing Columnist
NEW YORK (CNN/Money) - I am being offered mortgage protection insurance. Is it worth the cost?
-- James Lawrence, Tampa, Florida
Here, you're being offered the chance to buy an insurance policy that will repay your mortgage in the event of your death, disability or some incapacitating disease.This offer -- typically by mail -- often comes from your lender or an insurance company affiliated with that lender.
This type of insurance is purely voluntary, however, so the question is, should you buy?
Generally, I'd say the answer is no.
It rarely makes sense to buy insurance for narrow reasons -- to insure against a specific disease or a single calamity or to provide funds to pay off a single liability, in this case your mortgage.
In the case of life insurance, for example, you're much better off analyzing your overall insurance need based on what kind of liabilities your spouse or other dependents would face and how much income they would have to replace if you were gone, and then buying enough insurance to meet that need.
Fact is, if you died tomorrow, your dependents would need to replace your income for a variety of reasons, not just to pay the mortgage.
Indeed, it might not even make sense to pay off the mortgage. Your spouse or other survivors might be better off continuing to pay the loan -- assuming that's possible -- and putting insurance proceeds to other purposes.
In other words, you should take your overall financial picture into account when buying life insurance.
And the way you should do that is to have a financial planner or life insurance agent perform what's known as a "needs analysis." You can also use any one of a number of insurance needs calculators online, including the calculators at The Life and Health Insurance Foundation for Education site and TIAA-Cref site.
Of course, that leaves the question of what type of insurance you should buy -- whole life, term, etc. -- and the issue of how to shop for the best price for a policy.
For more on those topics, see a column I wrote last year called "Life insurance made easy."
The same goes for disability insurance. You should consider a long-term disability insurance policy not just because you have an outstanding mortgage, but because you would likely need to generate income for a variety of reasons even if you were disabled and unable to work. For more on choosing a disability policy, click here.
All of this is not to say there isn't ever a situation in which mortgage life insurance might make sense. Since these policies are usually being mass marketed by mail, the health standards you must meet to buy one of them is usually much lower than for a regular life insurance policy.
So if you're in poor health and would likely face higher than usual premiums -- or might not qualify for a policy at all -- then you may want to consider a mortgage life insurance policy.
Even then, however, you'll want to check the policy's fine print for restrictions on covering pre-existing conditions as well or other qualifications that might restrict a payoff after your death.
Barring such a scenario, however, I'd say you're almost always better off taking a more holistic view of your insurance needs and then doing some careful shopping for a policy rather than signing up for a policy offered in an unsolicited pitch via mail.
source: http://money.cnn.com/2003/12/19/pf/expert/ask_expert/index.htm
