1. Mortgage life insurance is more expensive
Remember when we talked about the issue with guaranteed issue insurance—that it’s essentially a stuffy security blanket you don’t really need? (If you missed it, you can check it out here.) Well, the same problem creeps up with mortgage life insurance. Why? Because lenders don’t make you go through medical underwriting when buying a mortgage life insurance policy. And you know that if you get to avoid peeing in a cup, there’s gotta be a catch.
When your insurance company doesn’t know anything about your medical history, it’s extremely difficult for them to price your policy. It also puts them in a position that’s risky because your chances of dying soon could be sky high. So what do insurers do? They make up for the lack of information by placing mortgage life insurance applicants into the highest-risk groups. In other words, if you want to be automatically approved for coverage without providing any medical information, insurance companies will just assume your health is poor and charge you high premiums. There’s the catch.
We tested this theory by comparing real mortgage life insurance and life insurance prices. We found that a $500,000 TD mortgage life insurance policy would cost a healthy 31 year old about $70/month. For the same coverage, life insurance companies would charge as low as $35/month. That’s half the cost!
And if you think that’s bad, wait until you hear this: with mortgage life insurance, your benefit amount decreases as you pay off your mortgage, but the premiums remain the same. So over time, you get less and less for what you pay for. With life insurance, the amount of coverage doesn’t drop over time (even if you pay off your mortgage).