Definition: Mortgage/Debt Insurance

Mortgage life insurance, also known as mortgage insurance or creditor insurance, is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person listed on the mortgage passes away.  But in many cases, you may prefer to own your own insurance policy.

How does term life insurance cover your mortgage?

When you purchase a term life insurance policy, you take into account all the money your family will need in case you are not around to help out. This includes your mortgage payments.

A term life insurance policy gives you added coverage and flexibility over a mortgage life insurance policy

- The beneficiary of a mortgage insurance policy is the bank, whereas your family receives any payout from your term life policy directly. This gives them the flexibility of using the money to pay off debts, or, if they can still carry the mortgage payments, they can use it for investing and securing a future income

- Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a term life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.

State probe of forced mortgage insurance heats up

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A probe by New York State’s top financial services cop into possible fraud in the sale of pricey mortgage insurance is being stonewalled by a pair of Wall Street firms who refuse to turn over data, The Post has learned.

Ben Lawsky, the Superintendent of the state’s new Department of Financial Services, was rebuffed by Citigroup’s mortgage unit, Citimortgage, and insurance agent Assurant Inc. — both of which are maintaining that they don’t have to comply with the state requests, according to sources familiar with the situation.

Lawsky subpoenaed the two companies in an attempt to get information about their policies of assigning the costly mortgage insurance on certain home loans.

The so-called forced-insurance practices has become a major cause celebre for Lawsky, who issued more than 30 subpoenas to a number of insurance agents and mortgage subsidiaries of JPMorgan Chase, Morgan Stanley and Wells Fargo as far back as October.

At this point, Citigroup is claiming that the DFS does not have the authority to subpoena certain information from Citimortgage prior to the passage of Dodd-Frank, which went into effect on July 21.

“As Citimortage well knows, we are conducting a large-scale, intensive investigation into all aspects of the forced placed insurance industry. Citimortgage should immediately cooperate and desist in any efforts to thwart the scope of our investigation,” Lawsky said in a letter to Citi today, a copy of which was obtained by The Post.

In a letter to Assurant officials, Lawsky’s office accuses the insurance agent of destroying e-mails, despite receiving an Oct, 3 subpoena for documents.

Since being confirmed in May as the head of the newly-minted DFS, Lawksy has publicly announced that he is probing whether banks steered homeowners into such pricey insurance policies in exchange for kickbacks.

"Assurant respectfully disagrees with the New York Department of Financial Services position regarding the Company’s document retention practices," said an Assurant spokesman. "In an effort to address the Department’s concerns, however, while this matter is pending, we are modifying our records retention practices."

Officials at Citigroup were unable to comment. A spokesman for Lawsky’s office declined to comment.

During the mortgage crisis, forced-placed insurance became a hot industry as more and more homeowners were forced to pay high premiums imbedded in their mortgage payments originated by banks even as the housing market crashed and their houses plummeted in value.