Mortgages Good - Insurance Evil

This rather simplistic method comes right out of the middle ages and certain fundamentalist religious groups. Recent sport in the mortgage mag has been to abuse the idea of selling insurance just when many mortgage brokers have been casting about for a way to increase income - and thereby survive the credit crunch. It's basically "I am holier than you".

I do have to be careful how I select my words in public. So I have thought very hard about what I am about to say.

This is clearly bullshit.

If there is an operational or practical reason for not selling insurance then suggesting it takes a lot longer to complete a risk application than a mortgage application is definitely not it. What's more, the deliberately extreme comparison selected by the author tells me that he knows it's bunk too. Sure SOME risk applications can take 3 hours. But SOME mortgage applications can take as long. It makes no sense to declare that the average speed of a car in Auckland is 54kms and then compare that the top speed of my car - around 180kmh. Then concluding that everyone should buy a Peugeot 406.

This is just stupid.

One bank I know of reckons that adding a simple risk cover to a home loan adds between 12 and 22 minutes to the sales process, typically.

If there is an ethical or moral imperative at work here then if anything it's pointing in the direction of selling the insurance, not leaving the client with a massive ongoing commitment to service a loan and no way to do that if they are either disabled or dead.

The current housing crisis is a great example of why you need cover. A couple with a young family I know of bought a house in Milford last year - cost $500,000 - home loan of about $420,000. Typical for Auckland.

This year a cancer scare saw Mr Homebuyer spending time worrying. As it happens it was all clear. What's more they've decided they need a bigger place. But their house was passed in at Auction recently with the highest bid at $420,000 - only just what their mortgage is.

Imagine if the cancer scare had proven real. What if Mr had needed time of work for surgery and recuperation. What if that had forced them to sell in this market?

But they had insurance. So the financial consequences of that risk would have been removed. For how much? About $40 a month.

Now that makes sense.

Mortgages on the other hand. The power of leverage can kill. Witness BlueChip investors... but I am not stupid enough to say "Mortgages Bad, Insurance Good". Every product has it's ups and downs.