Know anything about accidental death mortgage insurance?

[MaimounaKande]

Permanent life insurance can be an excellent investment tool, if you're using the right one (making sure death benefit does not decline if you pull out your cash) and funding it well. Grows tax-free and can be taken out tax-free as well, provided the policy remains in force. Great wealth building tool once you've taken care of the basics (401K, IRA, etc). Also a great way to keep taxes down once you retire (if you're only using $50K/year from your brokerage accoutn, and another $50K from your insurance, your tax bracket wil be lower than if you take all $100K from brokerage; that sort of thing...). It's not for everyone, and you have to feel comfortable with any investment, but this is a tool with a pretty big loophole for the wealthy, and it's well used.

But I don't think it would be appropriate for the OP. Term is your better bet here. When deciding how much term to take out, I would caution you from thinking that your mortgage will be significantly less in 20 years than it is now. Maybe if you're older, or if you're an exceptional person, but most people's mortgages do not go down. They have kids, upgrade, move into bigger and better neighborhoods...mortgages tend to go UP, not down. People just don't buy a home at age 25 and stay in in until they retire. At least not often. If you ARE someone who really, truly believes you will do that (or if you're older and it's more likely you won't move again), then assuming a smaller mortgage might be correct.

The other disadvantage to the mortgage insurance is that it pays off the mortgage. Having a mortgage is often a GOOD thing, in terms of tax ramifications. If your wife (for example), were left, she might not want to pay off the mortgage. She might rather work herself to mke the payments, but prefer to invest the life insurance money. Or use it for something else. That sort of insurance pigeon holes the survivors into what might not be what they want, or the best financial solution.

[NewOldLompac]

I believe term life is your best option in this case. I would also urge you to think of life insurance in broader terms than just paying off the mortgage. Life insurance should be used to replace the earnings potential of the deceased partner. Consider getting a 10 to 15 year level term policy with a payout of at least 10 times the highest earning partner's pay. Ideally at some point you won't need life insurance because you will have accumulated enough assets that you will essentially be self insured(as far life insurance goes).

About mortgage life insurance and cash value:

When you buy mortgage life insurance you are buying a very expensive insurance policy for the lender. The only cash in cash value is the huge commission the agent gets for selling you such a poor investment vehicle.

[christina0001]

I am no expert, but I would think term life would be your best option. It's cheap and you could use the money for anything, not just paying off the mortgage. Disability insurance is really even more valuable because A. you are more likely to become disabled than die, and 2. being disabled not only means losing your income, but also you may incur new expenses because of your disability.

Insurance is important and it would be prudent to talk to/get quotes from a few insurance companies. Quotes are free so why not?

[golfgal]

Originally Posted by sunsprit

Golfgal ... you make absolutely UNFOUNDED ASSERTIONS about who I am and what I KNOW about investment strategies and protecting one's assets.

It's patently obvious that everytime someone on this forum needs (or thinks they do) some insurance that you immediately select an insurance policy that will build cash value instead of seeking to meet their real needs. In my view, the only person you're looking out for is earned income for the agent. You're certainly not doing the OP any favors with your viewpoint. In the case of this OP, there's a serious question about even having a real need to cover the whole amount of the mortgage, which was well addressed by NewtoCA, too.

I have done extensive research into how to best place my money and achieve my investment goals, with at least 10 capable & knowledgeable insurance agents assisting through the years. Some were selling house products, some were independents. All well knew my financial situation and what my needs were.

At no time was an insurance policy a "better value" for my investment goals in foresight or hindsight.

I am well aware of the costs of investing in other markets for my goals, and factor those costs into my returns. I invest in real estate, tax-free bonds, stocks, securities, and taxable/load funds ... and all have done better than any insurance policy I've seen.

Oh, and as a young man (in my 20's), I did buy a policy such as you advocate, based upon the sales pressure of a trusted friend who was just getting into the insurance industry (as were the rest of her family for generations) on the paranoia of buying now to protect my insurance needs in the future. (Or was it because I could "lock in" lower rates based upon my younger initial purchase age then before I really would need life insurance later when I would have a family?) Based upon her advice, I wound up buying policies that were supposed to be the "best" at the time, and then as interest rates changed and products changed, she'd come to me with a "roll-over" into another product. The net result after all the years and changes was she made her earned commissions and I had a net cash value of about $4,000 (whole life, universal life, etc ... you know the gyrations through the 70's and 80's these products went through) which was a lot less if I'd have invested my money in a passbook savings account and bought an appropriate amount of term life if/when I needed it during the same time period. You should appreciate that a passbook savings account would be a whole bunch less ROI than what I could make in other vehicles through that same time period. When I realized how badly I'd been screwed and needed the cash for other investments, I took out the cash value and moved on ... after over 20 years with my trusted friend's insurance programs. She'd also sold me my insurance for cars, airplanes, houses, motorcycles, boats, business, etc.

Anyway, folks here don't need to take my word on it re the poor value of insurance as a wealth building vehicle. Reasonable resources, ranging from Consumer Reports to virtually every financial advice magazine published .... counsel to purchase term life to meet your actual needs and to invest your money in other vehicles.

Frankly, golfgal ... I'd bet someone on this forum could be needing automotive insurance and you'd be touting some form of investment insurance product for that if it was offered ....

Once again I point out that our priorities are much different. I am glad you were able to accumulate so much wealth but your way isn't the only way and since the OP WAS talking about insurance options then that is what I spoke to. Your investment strategy also takes time and when you were just starting out and didn't have the cash built up in your portfolio, what would your family have done if you died? That is the whole point about life insurance. Permanent insurance IS a good option for many, many people even if you personally don't like it. What makes your way the best way??? Oh, and you aren't the only one with a 7 figure net worth, only some of us prefer to keep our money in our investments vs buying toys.

[Pimpy]

Stay away from any type of "mortgage protection" insurance that you will surely receive MANY postcard-style solicitations for immediately after completing any type of real-estate transaction.

These are almost always "non-med" policies (meaning you don't have to submit to any kind of medical exam) that are WAY overpriced for the benefit you receive.

If you want to protect your mortgage, go the Dave Ramsey route and get a good 20-year renewable and convertible level term policy.

I don't always agree with Dave, but he's dead-on when he says term life is the way to go.

[sunsprit]

Once again, Golfgal ... you make very stupid assertions about me and my lifestyle without any foundation whatsoever.

In view of the fact that most life insurance sales are "relationship" based selling, you've got to be one of the most inadequate people in the business I've ever encountered.

1) I bought term life for the protection of my young family when it was actually needed in the amount that was needed for reasonable cost. It certainly cost me a lot less per month and gave my family the financial protection for a minimal sum compared to the paltry amount of my whole life policy. The good aspect of that term life purchase was that now that I don't need the insurance for my family as I have other durable income streams that they can rely upon, I'm not paying for the coverage.

2) Considering that my portfolio of assets is largely based in productive real estate, REIT's, stocks, bonds, and other financial products ... calling me out for placing my money in "toys" is the height of stupid ignorant arrogance and assumption on your part.

For example, my airplane is used a lot for the convenience of traveling on my own schedule to a lot of clients in my multi-state territory that could not be accessed in a two to three day road trip ... I can fly directly to their job sites or very close by in a one day trip which cannot be done on commercial scheduled airlines. When the region's roads are bad after a winter storm, I can fly over the top and many times get to where I need to go to serve my clients. Further, I bought it long ago out of a distress situation where the cost was less than the down payment on your car, and paid spot cash for it. Cost me $12K, now appreciated to about $75K. Do you really want to tell me that that's only a "toy" and not worth every penny I've got in it? Oh yeah, I did replace the radios for $4,500 to upgrade the panel.

My fleet of cars? All purchased wholesale in the trade or for spot cash from distress situations. For example, my 1982 300Dturbo MB was aquired for less than $4,000; a Lexus dealer trade in with only 100,000 miles, it was a convenience for the dealer to have it off his lot immediately rather than taking it to the auction. My purchase price represented a few dollars sure profit right now for him rather than the time and costs to detail the car and prep it for the uncertain auction. The car now has about 300,000 miles on it and runs flawlessly ... because I maintain it well, since that was my trade for many years (auto/diesel mechanic). Bought a 1961 MGA "coupe" for $600 in non-running condition; brakes, paint, carb overhauls, major tune-up, small bits and pieces (switches, etc), upholstery cost about $3,000 ... and I sold it for almost $12,000 to an eager collector. Was that a bad deal for me, too, Golfgal? a waste of money on "toys"?

3) You're apparently ignorant of the "collectible" and rapidly appreciating value of many other automotive items. For example, most of my motorcycles are rare and collectible models of Ducati's, purchased (again) in distress situations for a fraction of their market value at the time I bought them ... usually due to a running problem which the dealers can't or won't fix. It takes me a minimal amount of time and parts to effect the repairs and have a correct bike (I'm a former importer tech). For example, a 1966 Ducati Mach 1, cosmetically perfect but running very poorly and not shifting correctly ... acquired for $500, parts cost me less than $50 ... and I rode it for 12,000 miles; sold to a collector in England for $8,500 a few years later. A 'guzzi Eldorado, bought for $1,500 ... tuned up and a few cosmetic items replaced ... sold for $5,500 after I rode it for 7 years and a lot of happy miles.

Relatively speaking, I'd bet the total amount of dollars I've invested in my auto/cycles hobby is trivial and wouldn't generate a lot of annual cash flow in any legitimate financial instrument. But, by combining my knowledge and skills, I can turn a few dollars into a significant amount of money with minimal risk, and have fun along the way.

I'll bet that's a better investment of my time, energy, and cash flow than a round of golf anyday .... I don't know what you spend on golf, buy my in-laws blow several hundred dollars a day on golf greens fees and carts and have nothing tangible to show for it other than a happy memory at the end of the day.

That's how I built my marginal cash flow up through the years to be able to become an investor in other things ... like real estate, which is all on a postive cash flow basis.

Maybe we should focus on the incredible initial sales commissions and continuing residual income that investment type life insurance policies generate for the salesperson. This might be a little more revealing to the posters here about why you're so hot to market this stuff for everybody.

I may be misinformed, but my understanding from friends formerly in the business was that the first year's premiums were almost all (if not all) sales commission. That's a heck of a front-end load on my policy, isn't it, for the company to have the life payoff risk as well as having to begin an investment program with no initial cash? That's why the first year has no cash value, and the first few years have very little cash value accumulation. Depending upon the product, the annual renewal premium represents a nice residual income, too ... and most people just make that payment without any further sales contact from the agent who sold them the policy.

All said and done ... it's interesting that most of the responders here also have advised term life as the appropriate solution to the OP's situation.

Further, it appears that MaimounaKande is knowledgeable about the insurance business, too. That post clearly identifies investment type life insurance as a not appropriate choice for the OP, but does assert that for specific tax situations for apparently high net worth investors, a cash value policy might be a good choice. Only after other vehicles are used ... 401K's, IRA's, etc .... That's a pretty narrow marketplace, since most people aren't utilizing those other common investments to their maximum potential to begin with.

Just curious, MaimounaKande ... do you have a net worth figure or taxable situation guideline where a cash value policy would start to be a viable tax and investment vehicle?

[maggiekate]

no, why if you are only 30, save your money in an ira, 401K or even Vanguard or Fidelty just put in both or either and when you hit 65. say
thank you! yes you could get life insurance, which, if you work may be provided. life insurance at your young age is a better way to go. Never buy what you may think you need with out all the facts, and other options to decide.

Insurance, is sales, and you do need to decide do you work, and your income. my choice is, as I did state. Invest, or buy term for 20 yrs which is cheap.

[Cecilia_Rose]

I would do either term or whole life depending on your situation. Or do a 401k instead. But whatever you do DO NOT get accidental death.

A friends employer offered this insurance to all their employees and spouses. Neither my friend or her husband bought additional insurance since she thought they both were covered. When her husband died from a heart attack she found that she had no insurance. A heart attack is not an accident.

I forgot the figures but it seems that most people die from natural causes very few of us actually get hit by a bus. Therefore this kind of insurance rarely has to pay up. The insurance company was not very happy when my friend told all her co-workers and they all canceled their policies.

[Padgett2]

Mortgage insurance is a gamble. Plain and simple. You are betting that he will die, and the insurance company is betting he won't.

Buy lottery tickets. You have a better chance of getting something back.