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Mortgage and Health Insurance

Mortgage and Health Insurance

Old May 10th 2007, 3:01 pm
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Default Mortgage and Health Insurance

Hi folks,

This is probably a silly question but does anyone here see any point in getting both Mortgage insurance and Health Insurance.

I'm not worried about being out of work for any other reason than a serious medical issue and we're not really into paying insurance for most things as it's just marketing in it's worst form, praying on fears.

Ta
Rich./
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Old May 10th 2007, 3:56 pm
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Default Re: Mortgage and Health Insurance

Mortgage insurance is often insisted upon by the banks. Many people don't have a choice and simply have to get it as part of getting the mortgage.

I'm not sure (talking off the top of my head here) but if you had mortgage insurance with the bank as the beneficiary, when you died your heirs would have no taxable event--the bank would (maybe?), whereas if you have life insurance, you'd have to pay tax on the proceeds and then pay off the mortgage with what is left.

So it might not be just marketing...there might be some real savings involved. But I'm not an expert on this.
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Old May 10th 2007, 4:26 pm
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Default Re: Mortgage and Health Insurance

Here's some info on mortgage insurance; usually called PMI.

http://www.bankrate.com/brm/news/mtg/20010601b.asp

Usually required by the lender if your house down payment is less than 20%.
However, often financial advisors advise better ways of dealing with the mortgage payments if you became unable to pay them due to ill health - disability insurance for one, as those funds could be used for other costs besides mortgage if you became unable to work. So PMI is something many try to avoid.

On the other hand, health insurance is a necessity - something a family would be crazy not to have.
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Old May 10th 2007, 4:31 pm
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Default Re: Mortgage and Health Insurance

Originally Posted by penguinsix View Post
Mortgage insurance is often insisted upon by the banks. Many people don't have a choice and simply have to get it as part of getting the mortgage.

I'm not sure (talking off the top of my head here) but if you had mortgage insurance with the bank as the beneficiary, when you died your heirs would have no taxable event--the bank would (maybe?), whereas if you have life insurance, you'd have to pay tax on the proceeds and then pay off the mortgage with what is left.

So it might not be just marketing...there might be some real savings involved. But I'm not an expert on this.
Generally no tax on life insurance proceeds -

http://www.irs.gov/faqs/faq4-9.html
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Old May 10th 2007, 4:32 pm
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Default Re: Mortgage and Health Insurance

there is also plain "mortgage insurance." this is like life insurance, but it only pays off your mortgage if you die. considered a bit of a rip-off, as you could get regular LI, and the beneficiary could do what they like with the proceeds.
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Old May 10th 2007, 4:49 pm
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Default Re: Mortgage and Health Insurance

There's a difference between mortgage insurance required by the bank (PMI) if you have less than 20% equity in the house, for example, and mortgage insurance you purchase that will pay off your mortgage or temporarily pay payments in the event of your death or disability. PMI is more meant to guarantee the bank against default for any reason than for disability/death in specific.

Personally I see mortgage insurance as another form of short- or long-term disability, or life insurance if you wish to leave the house to your spouse. STD and LTD can be offered through work. It takes a year for Social Security to kick in, and it does take time to sell a house, so if you don't have enough money in the bank to cover a year's worth of payments, then you may consider mortgage insurance if you have no STD.

If you were to be disabled for more than a year, and your house payment is high, you'd likely be forced to sell even if you owned it free and clear.
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