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I occasionally get clients that have purchased life insurance through their home or auto insurance company. For some people this is not necessarily a bad idea. Once upon a time, I did it too! I changed my own though after I learned that what I was sold was not exactly what I thought I had purchased. Take for example State Farm Life. It is generally a good company that offers competitive rates in auto and home owners insurance. Yet, I personally am not a fan of their mortgage protection insurance for three reasons.
1. It often is more expensive than competitively priced private insurers over the life of the loan. It also does not include living benefits that pay out if you have something like cancer, heart attack, stroke, or accidentally becoming disabled.
2. Though it is tied to your mortgage it doesn’t offer full coverage for the full term and most people believe that it does. Here is an excerpt from No Exam.
“This type of policy, as you probably already know, is tied into your mortgage. The policy term could be 15 or 30 years. The coverage starts at $50,000. During the first five years of the policy, the death benefit remains unchanged. If you die during that period, your beneficiary will receive the entire death benefit. From the sixth year, the death benefit reduces proportionately to the outstanding balance on your mortgage.”
To me this is borderline deceptive. Yes, it is in the actual terms but honestly few of us actually fully read the terms. I even get that you might get a slightly better deal upfront because it is bundled with other services that you are currently getting but it will likely not be better as time goes on especially since insurance products like home and auto can often be exchanged for better deals but that does not include life or mortgage protection.
The No Exam article notes that the benefits will not decrease more than 20% but why not get a plan that doesn’t decrease at all? The problem with auto and home owner insurance bundled policies are that the rates are often introductory rates. Auto and home insurers will give you a discount if you switch, but the catch is you can’t take your mortgage protection with you. It stays with the agency that you bought it through and the coverage amount goes down at certain periods. Many people do not like having policies at different places. In this scenario you become stuck, often paying more over time for less coverage.
3. I personally do not like it is because the amount of coverage decreases over time and insurance when done right is a wealth creation strategy.
Private insurers like American Amicable, Foresters, Mutual of Omaha, and SBLI all offer incredible rates, generally at less expensive rates if not objectively better over all coverage for the full term of the mortgage. They offer better insurance riders. It makes little sense to me why you would not get locked in for a full term of 10-30 years that provides more coverage over the life of the home loan or even do a whole life policy that has a term rider. You buy insurance by your age and health. If it changes then your affordable insurance options decrease. Why buy a policy that is only good for at best 20% of the value when you are older instead of 100%? I know this happens. It happened to both of my parents before I ever got into insurance. I genuinely don’t want it to happen to anyone else.
If you have a policy sold through a bundle deal and want a free review then message me. I will do a free review. If it is the best policy for you then keep it where you got it. We will see if there is any other insurance product that might supplement it but odds are you will find that better policies serve your families long term needs through an independent carrier.
My team would be honored to serve you. If you don’t want to use us then go directly to great carriers like Foresters or American Amicable. They will then connect you to a different independent agent. They do not sell directly to the public. Why would I tell you this if I do not benefit? Simple. It’s the right thing to do. I have over 40 other carriers that might be a better fit but what I genuinely want is for you to get one of the best policies available to protect your most important asset, your family.
