Mortgage Insurance – Are You Sure You’ll Get A Payout After You Die?

 *I know this isn’t my typical posting material, but after doing some research on this topic, I felt compelled to share it with others as it seems very important.*
When we bought our house two years ago, it was a bit of a whirlwind. We decided to look around, and I contacted a real estate agent. In about twenty minutes, she was over at our house with spec sheets of different houses to look at – at 10:00 p.m.  The whole buying process was too quick for my liking – but that’s another story for another day. Today, I want to talk about mortgage insurance.
First, although I work at a life insurance company, I am not a financial advisor or life insurance salesperson – therefore, I do not have a professional opinion on the matter. However, I do have a personal opinion, and like to think I have learned quite a bit about the topic of insurance while on the job. And what I have to share, I am pretty sure you are going to want to know.
In the midst of the quick house tours and the rapid purchase offers and then the piles of paperwork that comes with buying a house is a little thing called mortgage insurance. When we were purchasing our house, I specifically remember this moment – maybe because I work around others who work in the insurance business – but out of all those moments, I remember being asked about insurance. I do value life insurance, so I decided to sign up for mortgage insurance as well. Never again. Want to know why? I’ve learned a lot.
Here are some important things you need to know that they do not tell you…
Premiums will go up while the coverage will go down.  When you apply for your mortgage insurance, you are applying to cover the cost of your existing loan. As you pay on your mortgage, the debt will decrease. However, every time you renew your mortgage, the cost of the premium (or monthly payment) will increase due to your increase in age and other factors. Why pay more for less?
Mortgage Insurance is rarely guaranteed. Let’s start out with the cold, hard truth for you. Even if you have a policy for mortgage insurance and you are covered under that plan, it doesn’t mean when you (or another person on your plan) passes away you will receive a claim. What?!  I know! Right now, I hold a policy where the payments are approximately $30 a month. That doesn’t really seem like a lot of money, but in the two years of owning my home, I’ve spent about $720 on mortgage insurance. Put it in that perspective, and it seems like an awful lot of money to spend on something that is not guaranteed. When you apply, all the insurance company qualifies you to do is PAY YOUR PREMIUMS. The rest comes later…
It’s just one more form to sign and the application is too easy. This is they key! When we filled out our application for our mortgage insurance, we were sitting in the lawyers office and unfortunately, had our children underfoot. Not very ideal for such an important conversation. Our lawyer even mentioned that we would be “in and out” and that we only had to “sign a few things.” When you are a first time home owner, the process can be overwhelming. It is always best to be educated and prepared when making a major decision like the purchase of a home, but everything happens so quickly it is easy to get caught up. The form we were given had approximately three questions on it – very specific questions. They were easy to answer and we signed right along with the other forms for the sale of our house. That’s because the only thing that we were authorizing the insurance company to do was access our medical files – we weren’t actually answering anything specific to our health. There’s a reason why it is easy to apply for mortgage insurance (and why it is a bit more tricky to apply for life insurance). While life insurance companies do their underwriting process (medical examination and background history) at the time of application, many mortgage companies do their underwriting process posthumously. So, after you are gone and your loved ones are expecting to receive a claim that will pay off the mortgage, the insurance company is processing your medical files for reasons not to pay out. The reason why mortgage insurance companies (especially banks who offer mortgage insurance) do this, is because they are collecting your money and not having to pay out their own money for expensive medical examinations – they only have to pay out for medical exams on the few clients who die.
It is easy to be denied, after the fact.  While you might think you are in perfect health, it can appear otherwise to an insurance company underwriter looking at your medical files. For example, if you have a routine doctor’s visit and have your blood pressure tested – that could count as treatment for high blood pressure and a strike against you and your insurance claim. If you have been to the doctor because you were on a tropical vacation and something didn’t agree with you – or have had a bad case of the flu – that counts as seeing a doctor because of gastric or intestinal issues. If you have a mammogram, a pap smear or a prostate exam – those count as being tested for cancer. It’s not having these tests that disqualify you from insurance – but you have to indicate that YOU HAVE BEEN TESTED. Most people wouldn’t even consider these as “treatments” because they are routine tests after you reach a certain age. If you fail to indicate this, the insurance companies will consider this fraud and you could be disqualified. When they are looking for something, they are looking to save money. They don’t want to have to pay out – and most banks and insurance companies will not even refund your paid premiums either.
Insurance brokers are a better way to go when looking at insurance for your life or your home.  The main reason for this is because they  are LICENCED to sell insurance. They’ve had to go through the lengthy process of studying the industry and earning their qualifications to sell the insurance to you. When you are thinking of purchasing insurance, they will actually sit down and talk with you. They will go through the underwriting process with you, explaining the questions as they go along and why they need to ask them. While this is helpful, it doesn’t necessarily mean you will be automatically approved on the spot.  After applying for insurance with your broker, you will still need to have a blood test, vitals test, and a urinalysis before you are are approved. And sometimes, they’ll need a statement from your doctor. Even if you do have some medical issues, you can still qualify for insurance – you just might have to pay a bit more. But the real assurance is this – if you apply this way, and are approved, you are guaranteed your coverage. What you pay for is what you get, and after you die your loved ones will receive a claim.
I hold a journalism degree, and as such, always like to have more than one side of the story. I contacted the company that holds my life insurance and spoke to an “agent” on the phone. She was very polite, but was not qualified to answer my questions. I was directed to another individual who did not give me clear and concise answers, and who refused to answer whether a medical examination would be done before my claim was processed.
I decided to weigh in on what others were thinking and asked a few of my friends who had recently purchased a home, and those who have been home owners for quite some time. It seemed that any one who purchased a home in recent years signed a form quickly but felt uneasy about what they had signed, as they did not receive very much information on this so called “mortgage insurance”. There were others who were not given the option to decline the mortgage insurance when they purchased their home as they could not apply for a mortgage unless they applied for mortgage insurance as well. Many of the seasoned home owners did not have mortgage insurance – seems they learned some of the things I have along the way and decided it was overall a bad idea.
At this moment, I still have mortgage insurance. I am discouraged that I have spent so much on something that was such a waste. I am thankful my husband and I both hold personally owned life insurance plans, so we are prepared in some sense. After I’ve learned what I know now, I will be cancelling my mortgage insurance policy. Will you?
**Here is an informative video that shares the story of two different families who were denied an insurance claim after there was a death or illness, when they thought they were covered by their mortgage insurance.**

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