Online Information Guide

Mortgage Insurance – Mortgage Life Insurance

Mortgage Insurance. You graduate high school and you enter college. You put in four years of intensive study and you graduate. You find a job that is just perfect for you. You reward yourself for your achievement by splurging a bit. Now it is time to put your nose to th grindstone and do some serious saving because you want to own your own house.

Mission accomplished after a fairly short period of time. You have enough for your down payment and accompanying costs and you buy your house. Now you don’t want to lose it so you make certain you have the mortgage insurance that the real estate agent recommends. You know, your fire insurance, flood insurance etc. I have not been able to figure this one out but too many homeowners do not own a mortgage life insurance policy that would pay off the balance of the mortgage in the event of premature death. May be it is just an oversight as this type of insurance is so inexpensive.

Probably the largest investment most people make during their lifetime is the purchase of their home. More and more Americans are owning homes today than ever before. Things are better financially in the United States than it has ever been.

You move ahead and you get married, you subsequently have children. I am positive that you would want your wife and children to own their home even if you are not around to make that mortgage payment. Of course your spouse could work but let us look at it this way. If you have young children she may prefer to stay at home and do that very difficult job of raising the children that you both brought into this world. With a good mortgage insurance policy plus other adequate life insurance that would provide an income sufficient for them to live on you wife could stay home.

What is this mortgage insurance anyway? How does it work? To cover their mortgage the popular choice is the decreasing term life insurance policy. Other policies may been used but the decreasing term policy is most often bought to fulfill this need as it was designed specifically to pay of the mortgage balance owed in the event of the death of the homeowner. The face amount decreases every year with the mortgage balance, depending on the mortgage interest rate. The premiums remain level for the duration.

About the Author

For more than 40 years Donald has been known for his extensive knowledge of the life insurance business. He has represented some of the largest and best life insurance companies in the United States as well as Canada. His advice is invaluable.

Donald’s website is: http://www.lifeinsurancehub.net

Mortgage Insurance – Mortgage Life Insurance by Donald Lusan

Determining How Much Life Insurance You Need

When considering life insurance, you’re planning and preparing for an event most of us would rather not think about. But life insurance represents a critical step in managing your personal finances and ensuring your family’s well-being.

The Two Approaches to Life Insurance

You can use one of two approaches to estimate how much life insurance you should buy: the needs approach or the replacement-income approach. Using the needs approach, you calculate the amount of life insurance necessary to cover your family’s financial needs if you die. Using the replacement-income approach, you calculate the amount of life insurance you need to equal the income your family will lose. Let’s look briefly at each approach.

You Need How Much?

Using the needs approach, you add up the amounts that represent all the needs your family will have after your death, including funeral and burial costs, uninsured medical expenses, and estate taxes. However, your family depends on you to pay for other needs, such as your child’s college tuition, business or personal debts, and food and housing expenses over time.

The needs approach is somewhat limiting. The task of identifying and tallying family needs is difficult, and separating the true needs of your family from what you want for them is often impossible.

Replacing Income

Using the replacement-income approach for estimating life insurance requirements, you calculate the life insurance proceeds that would replace your earnings over a specified number of years after your death.

Life insurance companies sometimes approximate your replacement income at four or five times your annual income. A more precise estimation considers the actual amount your family members need annually, the number of years for which they will need this amount, and the interest rate your family will earn on the life insurance proceeds, as well as inflation over the years during which your family draws on the life insurance proceeds.

Note: Do remember as you quantify the income you want to replace that Social Security provides generous survivors benefits if you’ve qualified. These benefits can easily total $2,000 a month or more.

Calculating Replacement-Income Amounts with Excel

If you’ve got access to a computer running Microsoft Excel, the popular spreadsheet program, you can use your computer to calculate the amount of insurance you need to replace a specified number of years of income. Suppose, for example, that you want to buy enough life insurance to replace the income from a $50,000-a-year job for 15 years. If you figure your family will earn 5% on the life insurance proceeds should the worst case scenario occur, you enter the following formula into a cell in an Excel workbook to calculate the replacement income life insurance amount:

=-PV(5%,15,50000)

Excel returns the formula result 518,982.90 indicating that you would need roughly $520,000 of life insurance, invested at 5%, to payout $50,000 a year for 15 years.

Two Calculation Tips

If you want to factor in inflation because you’re trying to replace income over a long period of time, you should use a real rate of return rather a regular, or nominal, rate of return.

To calculate a real rate of return, subtract the inflation rate from the interest rate in the formula. For example, if you expect 2% inflation, you could replace the formula shown earlier with this formula:

=-PV(5%-2%,15,50000)

Here’s a final calculation tip: You probably want to round up your number. For example, if the formula provided earlier returns the value 518982.90, you might want to round up this value to $600,000. Or $750,000.

About the Author

Seattle certified public accountant Stephen L. Nelson CPA has written more than 150 books. His bestselling book is Quicken for Dummies, which sold more than 1,000,000 copies. He also edits the limited liability company formation and setting up an S corp web sites.

Determining How Much Life Insurance You Need by Stephen L. Nelson

Eight Rules for Buying Insurance of Any Kind

By following the eight rules explained here, you can save money, and just as important, you can save yourself from making serious mistakes when you shop for and acquire insurance policies.

Rule 1: Buy Insurance Only for Financial Risks You Can’t Afford to Bear on Your Own

The purpose of insurance is to cover catastrophes that would devastate you or your family. Don’t treat insurance as a chance to cover all your losses no matter how small or insignificant, because if you do you’ll fritter away money on insurance you really don’t need. For example, if your house caught fire and burned down, you would be glad you had homeowner’s insurance. Homeowner’s insurance is worth having, because you likely can’t–and you certainly don’t want to–cover the cost of rebuilding a house. On the other hand, insuring an old clunker is a waste of money if the car is only worth $800. You would be throwing away money for something you could cover yourself if you had to.

Rule 2: Buy from Insurers Rated A or Better by A.M. Best

Insurance companies go bust, they are bought and sold, and they suffer the same economic travails that all companies do. Between 1989 and 1993, 143 insurance companies declared bankruptcy. You want to pick a reliable company with a good track record.

A.M. Best is an insurance company monitoring service that rates insurance companies on reliability. Look for insurers rated A or better by A.M. Best, and periodically check to see whether your insurer is maintaining its high rating. If your insurer goes down a notch, consider finding a new insurance company. You can probably get A.M. Best’s directory of insurance companies at your local public library, and you can find A.M. Best on the Web at www.ambest.com.

Rule 3: Shop Around

There are many, many, many kinds of insurance policies, and insurers don’t advertise by price. You need to do some legwork to match your needs with the cheapest possible policy. Talk to at least two brokers to start with. Look for no-load insurance companies–companies that sell policies directly to the public without a broker taking a commission–since they usually offer cheaper prices.

Rule 4: Never Lie on a Policy Application

If you fib and get caught, the company can cancel your policy. If you lie on an application for life insurance and die during the first three years you hold the policy, the company will cancel your policy, and your beneficiaries will receive nothing. Health, life, and disability insurers run background checks on applicants through the Medical Information Bureau, so you can get caught lying. The medical examination you take for life insurance can also turn up a lie. For example, if you smoked tobacco in the previous year, it will come up in the test.

Rule 5: Don’t Buy Specific-Risk Policies–Buy General Policies Instead

When it comes to insurance, you want the broadest coverage you can get. Buying insurance against cancer or an uninsured motorist defeats the purpose of having an insurance policy. If you have ulcers, your cancer insurance will not help you. Get comprehensive medical coverage instead.

Uninsured motorist insurance is supposed to protect you if you get hit by someone who doesn’t have car insurance or doesn’t have adequate car insurance. But, in my opinion, you don’t need it if you have adequate car insurance yourself, as well as health, disability, and life insurance. I should point out that some attorneys advise you to carry uninsured motorist insurance because, by doing so, you may be able to recover damages for “pain and suffering.”

Rule 6: Never Cancel One Policy until You Have a Replacement Policy in Place

If you cancel a policy without getting a replacement, you will be uninsured for however long it takes to get a new policy. And if disaster strikes during this period, you could be financially devastated. This rule goes for everyone, but especially for people getting on in years, since older folks sometimes have trouble getting health and life insurance.

Rule 7: Get a High Deductible

You save money by having insurance policies with high deductibles. The premium for high-deductible policies is always lower. Not only that, but you save yourself all the trouble of filing a claim and needing to haggle with insurance company representatives if you have a high deductible and you don’t need to make as many claims.

People who buy low-deductible policies usually do so because they want to be covered under all circumstances. But the cost, for example, of a $400 fender-bender is usually worth paying out of your own pocket when compared to the overall cost of being insured for $400 accidents. Statistics show that most people have a fender-bender once every ten years. The $400 hurts to pay, but the cost of insuring yourself for such accidents over a ten-year period comes to far more than $400.

One other thing: If you have a low deductible, you will make more claims. That means you become an expensive headache for the insurance company. That means your rates will go up, and you don’t want that to happen.

Rule 8: Use the Money You Save on Insurance Payments to Beef Up Your Rainy Day Account

While you can save money on your insurance premiums by following the rules mentioned earlier, it’s probably a big mistake to use that money for, say, a trip to Hawaii. Instead, use any savings to build a nice-sized rainy day fund that you can draw on to pay deductibles. A big enough rainy day fund can cover both periods of unemployment and your insurance deductibles.

About the Author

Seattle certified public accountant Stephen L. Nelson has written more than 150 books. His bestselling book is Quicken for Dummies, which sold more than 1,000,000 copies. Nelson also edits the popular setting up an S corp web site.

Eight Rules for Buying Insurance of Any Kind by Stephen L. Nelson