Foreclosure proceedings create significant fear and stress for the people involved in losing their homes. In the face of threatening letters and phone calls from a mortgage company intent on getting its money or property, homeowners will benefit from knowing exactly what means are and are not possible by the mortgage company. Understanding more about what banks and mortgage lenders can do to recoup their losses will help you endure foreclosure with less confusion.
If you stop making normal monthly mortgage payments, you default on your loan agreement. After a customary grace period wherein the mortgage lender attempts to get the past due money, formal foreclosure proceedings may begin. This entails the filing of motions with a court describing the manner in which you breached your loan contract, as well as notification of the lender’s intent to take possession of the collateral securing the loan -- namely, your house. If an agreement cannot be reached, a judge eventually grants the lender possession of the real estate.
Life Insurance Basics
Life insurance products provide monetary benefits to your heirs if you die. The primary purpose of life insurance is to provide income replacement and debt repayment; without your income, your family’s financial situation would become untenable because the remaining household income is insufficient to pay all the bills. Your heirs may choose a single lump sum payment of the entire benefit amount, or a stream of payments over a specified period of time.
Life Insurance Contracts
A life insurance policy is a legal contract between you and the insurance carrier, wherein you promise to pay a specific amount for a specific period and the company promises to pay your chosen beneficiaries a specific benefit if you die within that period. Your mortgage lender has no authority or influence over your life insurance contract and cannot interfere with the fulfillment of the carrier’s obligations. Only a judge may have the ability to modify or change your life insurance contract, and such an event could not occur without your knowledge or involvement.
The beneficiaries of your life insurance policy are the only ones eligible to receive the proceeds, and only you are in a position to add, remove, or otherwise change the beneficiary list. Unless you specifically list your mortgage company as a primary beneficiary on your life insurance contract, there is no way the lender can take possession of the money after you die. Additionally, nobody can force you to change your beneficiaries against your will.
If the foreclosure process on your real estate results in the loss of your property, your life insurance contracts will not be affected. No law or regulation exists that prohibits you from continuing to own or purchase an insurance policy during or after foreclosure. Your life insurance contracts will remain unchanged even if you lose your home.
Cash Value Life Insurance
Permanent types of life insurance accumulate equity over time, and such equity can often be withdrawn or borrowed against. The impact of removing cash value from a permanent life insurance policy depends on a variety of factors, including your age, the amount of the withdrawal, the type of policy and the face amount of the coverage. In the midst of foreclosure proceedings, you may consider withdrawing a portion of your life insurance policy’s cash value to assist with negotiations.
- SBLI: How to Combat Foreclosure with Life Insurance
- Insurance.com: How Do I Change the Beneficiary on My Life Insurance Policy?
- Your Finish Rich Plan: Rogue Debt Collectors Illegally Freeze Debtors’ Accounts
- LIMRA. "2020 Insurance Barometer Study Reveals a Significant Decline in Life Insurance Ownership Over the Past Decade." Accessed Sept. 15, 2020.
- Life Happens. "2019 Insurance Barometer Study: Nearly Half of Americans More Likely to Buy Simplified Underwritten Life Insurance." Accessed Sept. 15, 2020.
- Insurance Information Institute. "Facts + Statistics: Life insurance." Accessed Sept. 15, 2020.
Gregory Gambone is senior vice president of a small New Jersey insurance brokerage. His expertise is insurance and employee benefits. He has been writing since 1997. Gambone released his first book, "Financial Planning Basics," in 2007 and continues to work on his next industry publication. He earned a Bachelor of Science in psychology from Fairleigh Dickinson University.