Who would you like to name as your beneficiary? Your partner? Your children? Your bank?
It seems like a strange question, but it’s one that every home-owner needs to think about.

When you purchased your home, you took out mortgage insurance on it as well. You did that because you understood the insurance will protect your family by paying off the home when you’re not there to pay the mortgage any more. You did the responsible thing, making sure your family will always have a home to live in.
And that’s a good thing.

Many homeowners, though, are surprised to discover there’s more than one type of mortgage insurance available. There’s the kind your bank or realtor sells: insurance on your life covering the amount borrowed. Or there’s the insurance you own yourself – life insurance – which is insurance on your life covering the amount borrowed. Same purpose, but different plans with very different features.
And those features impact you and your family.

When you get mortgage insurance through the bank, the bank owns the policy you pay for and in fact, has become your beneficiary. You pay for the plan, but have no control over it.
Think about how this works: You’ll make your monthly payments (a.k.a. “premiums”). Your payment may increase every fifth year on renewal. Meanwhile, the value of insurance protection (money paid out upon death) decreases the same as your mortgage does … meaning you could pay increasing fees for depreciating value. Not only that, but you may be turned down for that insurance coverage at any 5-year renewal point, depending on changes in your health and whether you still meet bank requirements.

But suppose you stay insured and keep paying your premiums … what then? At the end of the day, your bank ends up receiving the insurance proceeds.

You might be thinking it doesn’t really matter who the proceeds go to, as long as your family ends up owning the home. If that’s your first thought, you might want to keep reading.

For the same or less money each month, you should be able to purchase as much – or more – life insurance from a life insurance company. And that’s all it takes to satisfy your bank. Basically, their main objective is to make sure the loan is covered and you are under no obligation to take the insurance offered by your branch.
So you sit down with a life insurance agent and work out the details. And now you own the policy yourself, which makes for significant differences. You chose a policy that suits your budget and lifestyle, first of all. Perhaps you wanted a plan that never costs more than it does now, for instance, or maybe you opted for one that increases every 10 or every 20 years. The main thing is that you chose the right plan for yourself.
For another thing, most individually-owned policies will insure you until age 80 at least—no matter how your health may have changed between now and then. You don’t need to re-qualify medically.
And another thing – would you rather leave your family more … or less?

If your mortgage when you bought your home was $300,000, so was your mortgage insurance. But in our first example with the bank owning the policy, your “face amount” decreases with time as your mortgage is paid down. Insurance value = balance owed. In the second example though, with you owning your policy, you can have the same face amount ($300,000) for as long as you’re insured. And your beneficiaries will be left with not just a home, but with any extra life insurance money too!

And that brings us to the last point. You as the policy-owner can name your own beneficiary / beneficiaries. You have control over who ends up receiving the money. And, on the same subject, it’s important for you to know that – unlike the rest of your “estate” – insurance money will flow straight through to your beneficiaries without being taxed.
At the end of the day, your beneficiaries will thank you.