Those mortgage protection letters
They start arriving within weeks of closing, often printed to look official and marked urgent. They are not from your lender, and they are not a requirement.
When you close on a house, the mortgage is recorded with the county and becomes public record. Marketing companies buy those records, and within a few weeks the envelopes start.
Most are designed to feel like correspondence you are obliged to open. Window envelopes, reference numbers, deadlines, sometimes your lender's name printed large enough to imply a connection that does not exist.
Underneath the packaging, what they are usually offering is a real and often sensible product. The problem is the packaging, and what it hides.
What is actually being sold
Term life insurance, with the death benefit sized near your mortgage balance and the term set near your remaining years of payments. If you die during the term, your beneficiary receives the money.
Two corrections worth making. The money does not go to your lender; it goes to your beneficiary, who chooses what to do with it. And the policy is not connected to your mortgage in any legal sense, which means refinancing does not void it and paying off the house early does not refund it.
Many of these policies include living benefits, allowing access to part of the death benefit while you are alive if you are diagnosed with a qualifying critical, chronic or terminal illness. For most households that is the more likely scenario, and it is frequently buried on page four.
How to read one
- Find the carrier name. If you cannot find it quickly, that is itself informative. You are being asked to respond to a brand you have not been told.
- Check whether the quoted price is guaranteed. Some are illustrative figures for a healthy applicant at an ideal age, not an offer.
- Check the term length against your mortgage. A twenty year policy on a twenty eight year mortgage leaves eight years uncovered, which is often the point at which premiums become unaffordable.
- Look for decreasing coverage. Some policies reduce the death benefit over time to track your balance. That can be reasonable and cheaper, but you should know it is what you are buying.
- Ignore the deadline. It is a marketing device. Nothing expires.
The envelope is designed to make you feel late. You are not late. You are on a list.
When to throw it out
If you already carry individual life insurance sufficient to cover the mortgage and your family's other needs, this is duplicate coverage and you can stop reading.
If your household could absorb the loss of your income without the house being at risk, you do not need it.
Group coverage through work is worth checking rather than assuming. It is commonly one or two times salary, which rarely covers a mortgage, and it usually ends with the job.
What we do differently
The letter represents one carrier. We are independent, which means we price the same coverage with several and show you the range. For identical coverage on the same person, the spread between carriers is often meaningful, and health history moves different carriers in different directions. A condition that one treats as a significant rating, another may barely price for.
It also means we can tell you that you do not need it, which an envelope cannot.
Talk it through with us
If you want the same coverage priced across several carriers instead of one envelope, that is what we do. Send a note and Andy will follow up personally, usually within one business day. The first conversation costs nothing and commits you to nothing.