It seems like the majority of topics for my articles brings back memories, some good and some less than memorable. This is one of the “less thans”.
More than 45 years ago, when I began my career as an agent for Cotton States, one of our marketing projects was the sale of mortgage protection life insurance. We were to visit the DeKalb County courthouse, obtain the names of new homeowners, send out letters, follow-up and hope for a sale. This idea was also used by agents from several other carriers, so competition was heavy and sales results very modest. I will buy Steve Spurrier dinner at Bones in Atlanta before I go through that again.
One of the problems with mortgage protection life plans of that era was the scheduled reduction in coverage over time. Although designed to mirror the mortgage amortization schedule, the reduction in coverage over time actually increased, sometimes significantly the cost per $1,000 of life coverage. Premiums on mortgage decreasing term insurance were not that economical in the first place. This product is not seen very much in the 21st century although a few carriers with bank endorsements still offer this plan. I am not aware of any mortgage that would require you to purchase this type of plan from one carrier offering it.
In the early 1980s, annual renewable term insurance came on the market, and many people turned to these plans to cover their mortgage. These products offered extremely low premiums in the early years, but the annual increases made premiums less than attractive. Persistency on these plans was not good as plans were usually replaced every 3-5 years.
Annual renewable term insurance is seldom available due to the high costs the carrier incurs to issue coverage.
Typical term plans are now available for periods of 10-30 years with rates and level death benefits guaranteed for the full period. These plans are cost effective and do a very good job of covering your mortgage exposure. An area of concern is the lack of conversion options to all available plans the carrier offers.
It’s very easy to match the mortgage with the face amount and provide 30 years of level coverage while the mortgage decreases. You would be surprised to know that a low cost universal life insurance plan with a 20 year guaranteed death benefit can provide more coverage for lower cost. As the coverage decreases starting in year 21, the reduced coverage will still cover the balance of your mortgage. An extra benefit is not having to worry about conversion as you already have a universal life insurance plan.
This product suggestion is better suited to people of younger ages who are buying their first or second home. If this describes your situation, check with your advisor as you can save some premium dollars and have higher coverage at the same time. That’s always a good idea for the consumer.
Mike Lassiter is a Chartered Life Underwriter and Chartered Financial Consultant. He is a Licensed Insurance Counselor and a Registered Investment Advisor. He can be reached at 770-786-2781.
