My husband was recently denied term life insurance because he has a criminal record from a long time ago. The good news is that, in a year, he’ll be far enough removed from the incident that he’ll be eligible for a policy. He has a whole life policy for $75,000 from before, which he doesn’t plan to cancel. We have two small children, so is there another kind of policy he could get in the interim?
If you can’t get term life insurance, you can’t get whole life. It’s the same underwriting process. I only recommend term policies, but under these circumstances I’d keep the whole life in place because he’s basically uninsurable.
There are a couple of things you can do in this kind of situation. One thing is to get a mortgage life insurance policy. These are usually available without any kind of major inspection, and they pay off your mortgage, in full, in the event of death. It’s about 10 times more expensive than regular term insurance, but at least it will pay off the house.
Another thing to look into is an automatic issue-type policy. Lots of banks offer these when you open an account. Usually, they’ll send you an offer for a $10,000 life insurance policy. But if you pick up four or five of these, then he’s got another $50,000 on top of the $75,000 already in place. It’s still not enough, but it’s better than nothing.
But I wouldn’t spend a lot when he’s only got a year left until he can get some good, proper coverage. I recommend people have eight to 10 times their annual income in life insurance coverage. So, if he makes $50,000 a year, he needs to have $400,000 to $500,000 in a good, level term policy. That’s what you guys need to shoot for a year from now!
Not enough down payment
When is it okay to purchase a house without making a 20 percent down payment?
When you’re willing to pay private mortgage insurance (PMI). And that’s not something you want to do.
PMI costs about $75 a month per $100,000 borrowed. So, if you borrow $200,000 on a home, and you don’t put down at least 20 percent on the transaction, you’ll have to pay out an extra $150 a month as part of your mortgage payment.
Private mortgage insurance does nothing for you except pay your mortgage company in the event they have to foreclose on you and they lose money. PMI is foreclosure insurance that protects the lender, and you get to pay for it if you don’t make a 20 percent down payment. In the scenario I mentioned before, that would be an additional $1,800 a year on a $200,000 loan. In a sense, that’s an extra 0.9 percent on your interest rate. That’s what it feels like.
So you can see that PMI is not a positive thing. Often, a first-time homebuyer will purchase a house with 10 percent down then pay the other 10 percent as quickly as possible in order to get rid of the PMI. Stay away from it, Hannah. It’s nasty stuff!