I recently helped a client get over $300 in insurance premiums back. They were paying for coverage on 2 loans and they no longer qualified for that coverage. That’s why it’s so important to review what you have for loan and mortgage insurance coverage.
Did you sign up for insurance coverage with the bank when you took out a loan or mortgage? If you did that some time ago, do quick check up on whether you should still have that insurance. You could be paying way too much for the insurance, or even paying for something that you are no longer even covered for. Here’s a quick guide for you to use.
First – Do a Loan and Mortgage Insurance Coverage Checkup
Start by listing all the loan and mortgage products you have and the insurance premiums you are paying.
|Product||Life Ins Premium||Critical Illness||Disability||Job Loss|
|Line of Credit||No Coverage|
|Total Monthly Payment||$105||$90||$95||$75|
|Total Monthly Ins Cost||$365|
The loan insurance in this example is pretty inexpensive. But the mortgage insurance appears quite costly and you can likely find a much better overall deal for your life and critical illness insurance. If you’re paying high premiums, this article will help you sort out which types of insurance are worth the cost.
Next – Check Your Overall Insurance Coverage
Review what coverage you have in place from work or any other insurance policies you may have purchased. Has anything changed since you took out your loan or mortgage?
Disability insurance coverage varies widely with each employer. Has the amount of disability coverage you have through work changed? If you didn’t have disability insurance through work when you took out your mortgage, but you now have coverage through work, consider reducing the percentage coverage.
The nice thing about mortgage insurance is you can reduce the amount of coverage to 50,60,70 percent etc. to save money and still feel comfortable that you have adequate coverage. So if you have purchased some other life insurance or have better disability coverage through work consider a lower percentage of coverage. Using the above example, the cost of disability and job loss insurance is $145 per month. If you now have better disability coverage at work and decide to reduce this to 50% coverage your premium will be $72.00/month instead.
Mortgage Life Insurance
There are so many things going on when you are signing up your mortgage, and insurance is thrown in there as just one more thing to decide on. Often people will sign up with the intent of reviewing their coverage later, but never do this. Take the time to review this!
First, mortgage insurance is usually more expensive than a term policy. Plus, you keep paying the same premium for mortgage insurance coverage, even though the amount of coverage is declining. What? Yes, that’s how it works.
When you start with a $400,000 mortgage, a monthly insurance premium of $180 for life and critical illness insurance may seem reasonable. But each year, your mortgage balance is reducing, however your premium isn’t. In 15 years when your balance is only $200,000 you’ll still be paying a $180 monthly premium. So why wouldn’t you buy a 20 year term policy for $400,000 instead, likely pay less and have coverage of $400,000 for the entire 20 years?
Now, if you are at the stage where you’ve had your mortgage for 20 years already and it doesn’t make sense to go out and get a term policy because of age or health, then just make sure you cancel it when the balance gets low. Surely you don’t want to pay $180 per month on a $20,000 mortgage.
Do You Still Qualify for Coverage?
Disability and Job Loss coverage only apply if you are working and NOT self-employed. Have you changed employment? Are you unemployed? Started your own business? These are all reasons why you want to review your coverage. For example, you took out disability insurance while you were working and now you run your own business. You are no longer eligible! But you’re still paying the premiums.
TIP✅: Anytime your employment status changes, you should review your disability and job loss coverage.
Another example I’ve seen is students paying for coverage that they don’t qualify for. A student may be working when they take out a student line of credit, and therefore sign up for disability or job loss insurance. Once in school, if they’re no longer working, there’s no sense having this coverage anymore.
What should you do if you’ve been paying and you no longer qualify?
Get your money back. The bank will refund 3 months right way. But you can get more if you advised the bank of the change in your employment status. Let’s say you started a new business 18 months ago, went into the bank to open a business account and updated your employment information. Since you advised them of this, you will get all your premiums back from the last 18 months.
In summary, review what loan insurance coverage you have, review what you have through work and any other policies. Make a habit of doing this at least every 5 years, and any time you change employers. If you think you’re paying too much for loan coverage, talk to an insurance advisor. If you’ve being paying for coverage you no longer qualify for, ask for money back!
Have you saved money on insurance costs? Share your story in the comments.