Buying Insurance From Your Lender

Today, I got an advertisement in the mail from my lender, "advising" me to buy mortgage insurance. After all, it's only $19.50 a month for $150,000 in coverage!

Of course, the fact that I can get life insurance of far more for the same price from an insurance company is never mentioned. The fact that I will pay the same premium, even as my mortgage balance declines, is never mentioned. The fact that it's the most expensive way to buy insurance is never mentioned. And, of course, the fact that it makes my lender money, just like interest does, and that the risks to the lender are minimal (especially with my good credit history) is never mentioned.

I hate products that are made to look like it's for my benefit, when it's primarily about the seller of the product and has nothing to do with me. Frankly, the lender wins in all directions. They are making more money; and if the insurance is coming through another company, the lender is getting a "cut", and in the end, they'll also have the mortgage paid off, regardless of what happens to me. How can the lender lose?

But the consumer sure can.

Should you have insurance? YES! Should you have enough to pay off your mortgage? YES! Is it better to buy through your lender? Generally, no. The only reason you could have to buy this insurance through your lender is that you don't have to worry about your estate being tied up and your mortgage payments continuing. You also don't have to worry if you don't have a will; your mortgage will be paid off regardless.

In my mind, it's just a good reason to have good estate planning and a will drawn up. In the long run, the money you pay for the lawyer will likely be less than the exhorbitant premiums you'll pay for mortgage life insurance through your lender.


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