Possibly most people today are aware of the great difference between term life insurance and bank mortgage insurance. People know that the bank owns the insurance (you don’t) you have to pay for it (they don’t) they are the beneficiary (your heirs are not) and it goes on and on.
Term Life Insurance
But apart from those good reasons, remember also that most bank mortgage life insurance is a lot more expensive. But it is not only more costly in dollars, it is also a lot more expensive in human anguish.
Term Life Insurance Comparison
Take your own situation or the situation of a friend that fits this scenario. Married with children, one spouse dies suddenly. The family has the normal comittments of daily living expenses all of which continue.
But what does the bank do, if you have bought their plan and not term life insurance? They pay off the mortgage but leave no money for the family’s every day needs!
If this couple had bought term life insurance, the survivor would have the money to continue to pay the mortgage as well as being able to look after the family.
Term Life Insurance Continues
Again, assume there had been a term life insurance policy and the mortgage had been obtained at favorable rates. Compared to today, it would have been very financially advantageous NOT to pay off the mortgage. Because now, if the survivor needs to take out another mortgage to continue the same standard of living, interest rates are higher along with the monthly payments.
You need to think carefully about term life insurance and bank mortgage insurance.
– You the owner and not the financial institution, own the insurance policy
– Your policy is created specifically for your needs
– You, not the bank, decide if you wish to cancel
– You choose your own beneficiary; the bank is not the beneficiary
– You don’t have to worry about your term insurance premiums increasing
– You decide whether to continue with the insurance if you sell the house
– Your policy is renewed up until the end of the period you select not what the bank selects
– Your policy amount remains the same, but not the banks policy
– You choose how to spend the money instead of the bank
– You can keep your policy even if you move the mortgage
– You pay less! You will pay as much as 40% less for your term life insurance policy.
Fixed term life insurance explained
The importance of having adequate life coverage should never be underestimated and the solution may be in taking out fixed term life insurance coverage.
But first of all, why is life insurance so important? Sadly, many people see it as an unnecessary expense, thinking that once they die, why will they need the money? However, life insurance provides financial protection for the loved ones you leave behind.
For example, if you died tomorrow, would your partner be able to meet the monthly mortgage repayment and day to day bills on one salary alone? Would they be able to live the same lifestyle without your salary? Or would they need to sell up and downsize, possibly uprooting your children in the process?
It is unlikely that they would be able to cope financially on just one salary alone and nor would you want them to be put under financial stress while coping with their grief.
The positive news is that the life insurance doesn’t have to be expensive and fixed term life insurance can be fairly cheap.
Fixed term life coverage is insurance that pays out a lump sum should the life insured (ie. the policyholder) die during the term of the policy. It is a simple and probably the most inexpensive form of life insurance cover available.
This is because if the policyholder (or policyholders in the case of a joint life policy) survives the term of the policy, it expires and no payment is made. As the lump sum payment is only made on the death of the policyholder, this makes the life assurance premiums less expensive than some other life insurance plans.
Fixed term life insurance can also have additional benefits such as payment of the lump sum upon diagnosis of a terminal illness (such as cancer) during the term of the policy.
The term will normally fixed to match your personal financial circumstances – for example, if you have twenty years to go on your mortgage, then you need life insurance to cover at the least the period until your mortgage is paid off. Or you may want it to run up until you plan to retire.
As with all insurances, do shop around to find the right deal for you you’ll be surprised how much prices can vary from insurer to insurer even though they are offering the same level of coverage and benefits.
Finally, if you are unsure about any aspect of your chosen coverage, then speak to your life insurance provider or seek independent financial advice.