General Question

Strauss's avatar

Is mortgage protection insurance a scam?

Asked by Strauss (19564points) January 7th, 2017

We recently refinanced our mortgage, and ended up with a monthly payment about half of what we’d been paying.

Shortly after the re- fi closed, I started receiving offers for “mortgage protection” plans to pay the amount of the loan if I or my wife pass away before the mortgage is paid off.

It sounds like a good idea on the surface, but none of these solicitations had the name of a company or agent, as I would expect; nor was there any amount mentioned for a premium, although they all knew the exact amount of the loan, as well as the broker/lender we used.

Is this a possible scam? It sure feels like vultures circling.

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16 Answers

zenvelo's avatar

It isn’t so much of a scam (there are legit mortgage insurance plans) as much as it is preying on fears.

Over the life of a mortgage, the premium would stay the same, but the amount of the mortgage left to pay off would decrease. A $150 month premium to pay off a $500K mortgage may seem fair, but ten years from now, do you want to pay that on a $375K balance?

There are much better ways to protect your assets and provide for things.

janbb's avatar

I thought mortgage insurance was usually included in the mortgage payment.

zenvelo's avatar

@janbb There is PMI which is part and parcel of the mortgage payment and established when the mortgage is signed. Usually required by lenders when the buyer has less than 20% equity.

There are aftermarket mortgage insurance plans, which are more like a life insurance policy.

janbb's avatar

@Strauss I guess the most important part of the question would be do you have enough assets or a life insurance policy that would allow the mortgage to be paid off if one of you dies?

Strauss's avatar

Mortgage insurance protects the lender against default by the borrower. Since my loan is a VA loan, that type of insurance isn’t required.

The type of insurance policy I’m talking about is mortgage protection insurance, a policy that pays me or my wife, depending upon which of us passes away first, with no stipulations or restrictions on how the money is used.

Strauss's avatar

@janbb there is more than enough equity in the property over and above the amount of the loan that I don’t see the need.

janbb's avatar

Got it. And sounds like you answered your own question.

flutherother's avatar

It isn’t a scam and some lenders insist on it. I found it pays to shop around as the quotes can vary greatly for the same product. It can give you peace of mind but if you have plenty of equity in your property you don’t really need it so much.

elbanditoroso's avatar

I agree with @zenvelo – some people are worriers and this plays to their worries.

@flutherother – some lenders insist on an insurance (that is part of the PITI) until the mortgage is 20% paid off. I don’t think that’s what the OP is asking about. He’s being badgered by parasites.

Strauss's avatar

Parasitic badgers!

Judi's avatar

You would be better off just buying a life insurance policy for the full amount of your loan. Why would you want to buy a policy that goes down in value the longer you pay on it. (As your motrtgage goes down. )

Strauss's avatar

The payoff on the policy is the full amount of the loan. It’s totally independent of the mortgage. As I posted above, we have more equity in the property than the amount of the loan. We also have other term life insurance policies that will keep a surviving spouse solvent and comfortable.

Now that I looked at the situation, I can see that my wife and I are each worth more money dead than alive!

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