Essential and Non-Essential Insurance

Over a 36+ year career in the real estate conveyancing industry, I’ve had a chance to see insurance products that change lives for the better and some that absolutely disappoint.

What got me thinking about this today was this “perk” for buying “Lost Pet Insurance”:

“Found Pet Travel Assistance — Covers up to $500 to fly your found dog or cat home when they are discovered over 500 miles away from home.”

Hmmmm.  It just so happens that my Veterinarian is next door to my law office so I asked him:  “How often do pets turn up with embedded chips that are missing owners over 500 miles away?”   It turns out that in this military town, he has actually had a few pets “found” here whose owners were now in California!    He’s been in business longer than I have and “a few” spread over 40 years, some sadly no longer wanted anyway, and you wonder how much was paid for that $500 benefit.

The closest insurance in a real estate closing that we sometimes see with this total lack of value is lender-provided/required-life-insurance.    While the world would stop turning without title insurance, and even mortgage insurance, the lender required life insurance on some loans is of appallingly little value to the home financing consumer.

Conceptually, your heirs would love not having to deal with a large debt for a recently deceased relative.   But the “small print” on these products include pitfalls such as  . . . .  declining value of benefit!     Each year, the lender assumes the equity in the property will increase, so the need for a life insurance benefit to protect the lender against losses from foreclosing on an “underwater property” goes down incrementally.  Many a grieving widow is shocked to find that this insurance premium that has been paid monthly and initially covered the entire loan amount, by year 5 or 10 of the loan may not even cover half of the remaining loan balance!

If the life insurance requirement was made known to the borrowers well in advance, and they were able to shop on the open market for competitive products for equivalent declining benefits, most insurance agents agree that coverage could be found for half of what it costs when provided/required by the lender.   Additional “small print” often reveals that the insurance agency or company selling the overpriced insurance is a subsidiary of the lender!

Bottom line . . .  avoid lender required/lender provided life insurance like the Zika Virus.  Instead of shrinking heads, these products shrink your savings and offer very little in return.    Talk to your independent insurance agent and try to substitute a better product if you are required to have it.

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