What I Learned This Week
Last week, I made a post about Mortgages and it was pretty popular. I’d thought I would follow the trend and share what I learned this week (I hope you’ll get something out of it). Today’s going to be more focused on Canada because I’m Canadian (vive le Canada~). However, it might be translatable over in the USA (don’t quote me on that).
Today, we talk about Life Insurance. More specifically, Mortgage Life Insurance. I know what you’re thinking, “Donald, f*ck off. That stuff’s a scam, you’re a bloody idiot for considering it.” And you know, I’m totally cool with that, a lot of people think it. Hell, I use to be that same person until I decided to go on a route of “diving deeper into everything I’m curious about.” Because really, I don’t lose anything when I don’t give somebody my money, but I do gain something by researching a little bit more than your typical, biased joe (spoiler alert: MLI is a pretty poor decision).
Mortgage Life Insurance
Basically, it is a financial product whose value depreciates over time as you pay more premium into it. Here’s an example, Joe borrows $600k mortgage for 30 years and buys Mortgage Life Insurance. He dies that same year, that insurance pays off the mortgage (all $600k). However, let’s say he dies 15 years later and half the house is paid off, the insurance will then pay off $300k (when you qualify for $600k). Now, let’s say he dies 27 years from when he first took out the mortgage and has $50k left on the mortgage, how much does the insurance pay off? You guessed it, $50k (when you qualify for $600k). The horrible part is throughout the years, you’ve been paying a monthly premium for the insurance! So you are paying for a depreciating financial product!
There are better options, a traditional or term life insurance product typically keeps face value as you pay the monthly premiums (that means if it pays out $600k, you will get that amount no matter when you die). It’s just that as you get older, you become more risky and you pay a higher premium.
There has been much controversy surrounding mortgage life insurance. It really does benefit the lender only and is a really bad idea for the buyer, but sometimes it might be your only choice to help take care of the family in case you go early (how morbid). Also, if you are not healthy and do not pass the tests from term life insurance, it might be your only option (another reason to stay active and healthy).
At any rate, you guys know what to do if the banks try to sell you this product. As Canadians, we will politely decline and then curse at them under our breath. If you’re an expat, then act according to your culture. It’d be quite the show.
I hope you learned something today and as always, there’s two videos that I’d like to share below to further explain what Mortgage Life Insurance really is.