07/20/98

Mortgage Insurance: The Need is Obvious, the Solution Isn't

It’s the American dream; the quintessential symbol of security. More than that, home ownership is an American way of life. And for most of us, it is the largest single investment of a lifetime. What is the best way to protect this investment and your lifestyle?

We often take this lifestyle for granted and do not adequately analyze our complete protection needs. Ironically, most homeowners fully protect the home but not the owner.

Because of lender requirements as well as the obvious need, new home buyers acquire homeowner's insurance to protect against theft, fire, and general property damage. Yet many do not obtain sufficient mortgage insurance - to protect against the death or disability of the persons responsible for making the monthly mortgage payment.

Do not overlook the need for disability coverage. According to the National Safety Council, one out of three people aged 35 or younger will be disabled for six months or more before age 65. National Underwriter found that at age 42, your chances of becoming seriously disabled are four times greater than dying prior to age 65. Our income - and the ability to earn that income - is a great asset and one the needs to be protected.

While mortgage insurance meets the obvious need of protecting in the event of a death, the right insurance solution is not obvious. Many home buyers are quickly offered mortgage protection insurance from the lender or outside providers. These plans are simple to write and easy to qualify for. However, since the policies are written to insure a cross-section of home buyers with multiple levels of risk, they may not always appropriately fit each individual homeowner. Instead, you should select a plan that best suits your particular needs and situation. The first step is to assess your protection needs today and anticipate what they will be in the future. It is best to look at the broad financial picture and ask yourself this question: Will my family be able to sustain the same quality of life financially in the event of the loss of my income due to a disability or death? The answer will help you assess your total protection needs and select the right insurance product.

Taking the analysis a step further you should look at the following variables before selecting insurance protection -

* your age
* martial status
* ages and number of children
* funding needed for future educational expenses
* amount of existing life and disability coverage
* mortgage balance
* tax status
* current savings, investments and other liquid assets
* other income sources

These are the major factors to be considered before selecting insurance. A comprehensive analysis of these items will give you a clear understanding of your insurance needs. Once you have these answers you can begin selecting the right insurance product. Ignoring these issues and purchasing separate mortgage protection insurance could leave you underinsured and/or paying more in premiums.

A number of insurance products are available in todayís market place. Some, such as mortgage protection insurance, correspond directly to your mortgage balance and may provide the only additional coverage you need. Other products offer insurance coverage along with investment opportunities which can provide advantages such as tax deferred growth of your money and tax free withdrawals. Finally, some provide basic coverage for the least of amount of money covering set periods of time in which your protection needs are the highest. One type and sometimes a combination of two can provide you with the most effective coverage for both short and long term needs.

Do not make the mistake of meeting all mortgage and life insurance needs through a group plan offered by an employer. While this is a very cost effective way to maintain coverage, during the intervals in-between career opportunities, the family is completely unprotected. Given the number of job changes the average person makes in a lifetime, it is wise to maintain some private coverage to provide protection for your loved ones during those times.

Have you recently purchased a new home and are considering mortgage insurance? When did you last review your comprehensive insurance needs? Do you understand your current policies and are they providing you the right coverage for the right price? The right mortgage insurance plan, appropriately designed, can provide you true peace of mind.

For more information contact Don Coffin

Please send questions or comments to dcoffin46333@wradvisors.com.