Speak with an experienced advisor! You may wonder if you can replace a mortgage protection insurance policy after it has been issued. You may wonder if it is in your best interests to replace an existing mortgage protection policy. In this article, we will give you some scenarios where this makes sense for you.
We often help people replace their existing mortgage protection policies for new ones with more coverage, better protection, or lower monthly premiums. Many people who qualify for the best mortgage protection plans are sold costly policies that favor the insurance agent first, not the homeowner.
If you are looking to replace your current mortgage protection policy, we cannot stress enough how important it is to keep your current mortgage protection policy in place until you find a suitable replacement policy. You don’t want to cancel your existing insurance, have no mortgage protection coverage and force, and then have a death occur that would cause your family to lose their home.
Here are some reasons to consider replacing a mortgage protection policy
To save money each month
Some couples will not mess with replacing an insurance policy for $25.65 a month savings. Some couples feel it’s not worth their time to spend an hour or two to save $25.65 a month. Here is the catch…it’s not just $25.65 in one month; it is $25.65 every month. $25.65 a month in savings helps them save $307.80 a year in premiums. Over the life of their 30-year MP policy, this will save them $9,234.00 in premiums!
It took Allen and Paula one hour each to complete the process. Their hourly wage based on their savings would be $4,617.00 per hour ($9,234.00/2=$4,617.00).
How many of you would like to earn $4,617.00 per hour at least once in your life? That is what saving $25.65 a month will do for you on a 30-year mortgage protection policy!
If there is even a remote possibility we can save your family $9,234.00, give us a call. If you have a great policy, we will tell you that too. If we can help you save money, we will do it! Check out our mission statement page to see exactly how we operate our company.
To increase your coverage
If you sold your old home and bought a more expensive home, you will want to increase your mortgage protection coverage. We would caution you not to cancel your existing mortgage protection policy before talking to us!
If you have a good mortgage protection policy in place issued five years ago, your rates will probably be cheaper than what you can get in the insurance market (unless you were sold an overpriced mortgage protection policy in the first place!).
Usually, we recommend you keep your current mortgage protection policy in place and add more coverage with a separate policy.
Because money is tight, Bob got a $156,000 mortgage protection policy on him for their $156,000 mortgage. Bob’s premium was $38 a month for this protection.
After five years had passed, Bob worked his way up to management and was earning substantially more money than he did five years ago. Bob and Trina decided to sell their home and purchase a new one. They bought a new home with a mortgage total of $237,000.
Mary was still not working and was a full-time stay-at-home mom, but was not contributing income to the household. Bob wanted to make sure their home was entirely paid off for Trina when he died.
Because Bob’s current $156,000 mortgage protection policy was issued five years ago, he already had great pricing on this policy. Bob was now five years older, so his insurance rates would be higher than five years ago.
Our recommendation to Bob was to keep the existing $156,000 mortgage protection policy in place and take out a new $81,000 mortgage protection policy that would protect the value of the mortgage.
If we had written a new mortgage protection policy for the full $237,000, Bob would have been overpaying on $156,000 worth of protection (as it was based on his younger age five ago).
We saved Bob and Trina money each month by saving their current MP plan and adding a smaller amount of protection.
To switch to a traditional life insurance plan
Sometimes, our clients want to purchase a single policy intended to pay off their home and provide income replacement protection for their family. This can be done by purchasing a traditional life insurance product. Because of the mortgage protection component, we are happy to help shoppers with traditional life insurance products.
Tyrone and Aisha both had $100,000 life insurance coverage provided by their employer benefit package. They understood this coverage could change or go away at any time. They knew their employer could change their benefit plan and reduce or eliminate this coverage. They would not count on this money for anything other than income replacement to be used to pay month-to-month bills when one of them died.
Tyrone and Aisha knew that, when one of them died, they would need more than $100,000 in income replacement life insurance coverage. They also wanted to have the home paid off for each other when one of them died.
We worked with Tyrone and Aisha to get them each 30-year $500,000 life insurance policies. This would provide an immediate income replacement of $300,000 and would pay off their $200,000 mortgage.
Because Tyrone and Aisha would earn more money in the coming years, they would need more income replacement life insurance money. This $500,000 life insurance plan we helped them with would do this for them. As they pay off their mortgage over the coming years, the mortgage balance will decline.
When their mortgage balance hits $150,000, they would have $350,000 in income replacement life insurance. When their mortgage balance hit $100,000, they would have $400,000 with the income replacement. When their mortgage balance hit $50,000, they would have $450,000 with income replacement. And when the mortgage was fully paid off, they would have a full $500,000 worth of income replacement!
This $500,000 policy we helped them with did everything they wanted it to do. It also locked them in at a low monthly life insurance premium for the next 30 years!
You don’t have the type of insurance policy you thought you had
We perform policy reviews for clients all the time. Many insurance policies were issued 10+ years ago. Life insurance terms can be confusing, and what you thought you had, you may not have. Of the policies we review, 65%-75% of the clients we review policies for don’t have the protection they thought they had!
We do our best to help them. If your policy was issued 10 years ago, any new policies issued will likely be more expensive (as you are now 10 years older).
If in doubt, get in touch with us, and we will help you understand your options.
You were sold more coverage than you needed
We hear this one quite a bit, especially with our senior clients. Many of our older clients are equity rich in their home asset, but bank account poor in cash assets. This means they have a lot of equity in their home, but not a lot of money in their bank.
Many seniors we work with will sell their home when their partner dies and downsize to a smaller house. They need not cover the entire mortgage! The equity in their home is a death benefit for the surviving spouse. We just need to protect the ability of the surviving spouse to make mortgage payments until the home is sold!
They knew, when one of them died, their monthly expenses would quickly eat up all their bank savings.
What did we do? We helped Elmer and Pauline purchase $8,000 mortgage protection policies on each other. This would cover 18 months’ worth of mortgage payments for their home. This would allow the surviving spouse to have time to grieve properly, get the home ready for sale, and sell the home at the highest possible price.
That small and affordable $8,000 mortgage protection policy would protect the $416,000 of equity in their home. This would allow the surviving spouse to relocate to a senior community and have hundreds of thousands of dollars in the bank as a financial nest egg.
There are legitimate reasons to replace mortgage protection policies. However, it must be done in a smart way and with an insurance person with your best interests in mind…this can be hard to find in the insurance industry!
Conclusion
We always recommend products that benefit our clients before benefiting us! Sometimes, this means recommending you do nothing and keep your current mortgage protection or life insurance policy. Shoot us a call, and we can help you from the comfort of your own home, while sitting in your pajamas…that’s just how we do business!
