Is Life Insurance Important when buying a House?

By:  Rich Juan, Poor Juan

When buying a house, there is always this one item that is often attached to our mortgage payment. The MRI or mortgage redemption insurance.

What is it?

Simply put, it is life insurance for the borrower during the payment period of his mortgage. This is if the borrower passes away, the bank can collect the insurance proceeds which pays-off the whole mortgage and saves the family from inheriting the debt or eviction due to repossession.

If all goes well, and the borrower lives through the mortgage payments and the loan is fully paid, the MRI stops and the mortgage is finished. So what happens to the insurance payments? Normally, the MRIs used are Term Insurances. Which we all know, does not have cash values. When the term (payment period) is done and payment stops, the insurance stops and nothing is returned.

Isn't it a waste? Not really. You get what you paid for. Life insurance protection when you had huge liabilities. It's like renting life insurance. It's cheaper but you don't get to own it when you're done.

There is actually another alternative. It's using a whole life policy. It may seem I bit costly at first, but when you see the whole picture, you will be AMAZED at how cheap and cost-effective it is!

When you buy your whole life insurance for the purpose of MRI, it will be assigned to the bank or the creditor (whichever applies). Then you pay the premiums along with your mortgage. After having paid off the mortgage, you will have several options.

Option 1, you can choose to surrender the policy and get a portion of your premium returned to you via Cash Surrender Value (CSV).  Refer to the Whole Life Insurance sample illustration above. The total Insurance Premium paid for 20 years is Php 480,000, but since the Cash Surrender Value is Php 384,000, effectively you just spent Php 96,800 for the past 20 years.  It's like paying a premium of Php 4,840 per year for 20 years.

Another option (Option 2) is you can also choose to keep the policy by continuing to pay for it, or better yet, STOP paying altogether, no cash return  but KEEP the insurance with a lower life coverage amount. If you choose the second option, you'll have to change the beneficiaries to who you want (with the insurable interest of course!)

See, this is how great and exciting life insurance is?!

Want to know more? Contact us and we'd love to talk to you about it!