Hello, everybody, I’m Chad McMahon with Protect With Insurance, this life insurance episode is on mortgage life insurance. So first of all, what is mortgage life insurance? And then I’ll go into how does it work and what are some important things that you need to know? Mortgage life insurance is known as a lot of things. It’s known as mortgage protection, mortgage protection, insurance
It is a. Policy that’s structured as term life insurance, all mortgage protection is built this way, if it’s done correctly, it’s built his term life insurance the same duration, same term as the length of your mortgage and upon your death or depending upon the program and depending upon the company it’s through.
If you get diagnosed with a whole bunch of different conditions or if other things happen as well, then your mortgage gets paid off. And this happens in the form of of one tax free check that comes from the insurance company. And it does not go to the lender. It comes to your beneficiary if the event that triggered the payment of the policy. So let’s let’s make this very simple. Let’s say it’s a three hundred thousand dollar mortgage. So you get a three hundred thousand dollar mortgage protection policy upon your death.
The three hundred thousand dollar tax free check comes to your beneficiary, let’s say, just to make it easy, that it is your wife that receives this check. You die for any reason, they send three hundred thousand dollars and one tax free check to your wife. Now, again, depending upon the program and depending upon the company that it’s through, let’s say that the policy also pays in full. If you’re diagnosed with something that is terminal, diagnosed with something chronic or even critical and critical can be quite common.
Chronic is becoming more and more common as well. And over the next 20, 30 years, we’re seeing and the forecast on this is it’s kind of shocking, but we’re seeing a trend towards more and more higher percentage. Of chronic and critical conditions, and it’s becoming the new normal, so if you have a policy that has a built-In full payout, full pay off of your mortgage. For critical for chronic conditions, that’s very, very important. So, again, sticking to the same example, three hundred thousand dollars mortgage, your beneficiary is your wife.
If something occurs, such as you get diagnosed for critical chronic terminal condition and those are all built into your policy. Then the insurance company they’re going to send, that’s called a living benefit if you’re alive and they pay, so in those situations they send you a three hundred thousand dollar tax free check. And again, these are becoming more and more common. So let’s say you have the policy for three years and you have a heart attack and critical conditions pay 100 percent as part of your policy.
Then they’re going to send you three years into the policy, they’re going to send you three hundred thousand dollars, it’s tax free policy ends, it’s over, no more payments on it. You don’t owe them anything. They don’t owe you anything else. It’s over on your policy. So that is a good example of something that’s becoming more and more common in how important these policies are. And so when that check comes at three hundred thousand, let’s give another example.
Let’s say this occurs in 20 years and it was a three hundred thousand pound mortgage when you started 20 years ago. So we set it up today. And then in 20 years from today, you die for any reason. OK, let’s just stick with kind of a classic here. So you die in 20 years. The insurance company, they send your wife a three hundred thousand dollar tax free check, your wife deposits that check, pays off the mortgage.
And let’s say now, because it’s been 20 years, the mortgage is paid down quite a bit. And let’s say that one hundred thousand dollars, I’m not doing this accurately. This is just for easy math. Let’s say one hundred thousand dollars is still in the mortgage and two hundred thousand has been paid off. It’s not really how the math quite work out, but again, just for easy math, so your wife takes one hundred thousand of that and pays off the mortgage.
She still has two hundred thousand in the bank. No taxes do on that. And that two hundred thousand is going to make a big difference financially for your wife. So that’s how that works. OK, if something happens really, really soon, well you get the mortgage paid off. If something happens down the road, you get the mortgage paid off and then you have all of that extra money. Either you have it depending upon if it’s a living benefit or your beneficiary has it if it was due to death.
And it’s all tax free, OK, so that is how mortgage life insurance works, and there’s something else that’s important for people to know that are considering. It’s obviously a very important kind of a policy. A lot of people that get mortgages, they get mortgage, life insurance. There’s something called private mortgage insurance. It’s PMI. It’s not the same thing at all. And here’s what a lot of people don’t understand. It does not benefit you.
I’m going to say that again, private mortgage insurance, PMI does not benefit you. PMI is something that’s built into nowadays almost all pretty much all conventional loans. You go get you go get a loan to buy a place. And the lenders require PMI and they require that you pay for it. It’s not very expensive, but they require that you pay for it. They require that it’s part of the policy or they will not write a policy for you.
It’s not because you’re being singled out, not because there’s anything wrong with you. It’s because it hedges against their risk. It reduces their risk. If they have a small policy, something happens to you and you die. During the course of that loan, there’s a calculated risk, a calculated cost to the lender. And so that policy is something that sends them some money upon your death, but it does not pay down that mortgage. It’s very important that you understand that.
So the PMI doesn’t protect you. It only protects the lender. It’s required. There’s nothing you can do about it. It’s so crying about it is not going to do any of us any good would be nice if it wasn’t required. But it is. It’s a small cost. So that’s why mortgage protection or mortgage life insurance is so, so important. Because that protects you. That’s for you. That’s for you. And that’s for your loved ones.
That’s to make sure that that mortgage is paid off and that upon your death or again, the living benefits that it’s taken care of. So I hope this has been helpful. It’s a very, very important type of life insurance and taking care of that mortgage to protect that home so that there’s a tax free shelter. I’ve seen it happen too many times where there’s no mortgage protection in place, there’s no mortgage life insurance in place, and the home is lost due to foreclosure because it’s not affordable to keep it or there’s a big time crisis and it has to be sold really quickly because it can’t be afforded.
And so there’s no money made on it’s just kind of breaking even or a tiny bit of money is made on it and the difference between that and having a policy in place to take care of all of it. Obviously, that’s a very, very important thing, and you want to take care of your family. So I completely understand that. So if you have more questions, please just reach out to us. Reach out to me. You can always email us at hello at Protect with insurance dot com.
You can always call us or text us at nine to wait three two three zero nine three three and we’ll be happy to help you. All right. Take care. Stay safe out there.