Substandard Insurance

  

Categories: Insurance

You don't wanna be below standard. Or..."sub" it.

Like...you just got your driver's license at age 37 after 56 attempts. Odds are really good you're going to have at least one accident. The minimum insurance you must have in California has a $500 deductible and a minimum ceiling of, say, $5,000. So when you run over that little old lady, she has a financial motivation to sue.

If you had a $2,000 deductible and a ceiling of only $3,000, well...that's substandard. Somehow, they still granted you your license (maybe you tricked them with a solemn heart-crossing promise that you'd get it). But now you ran over Ms. Burkle, and since your insurance was substandard, all kinds of bad things happen to you. Mainly, that you will dip deep into your own pockets to pay her $14,882 of medical bills.

There was a standard. Your insurance was below it. So you owe.

Related or Semi-related Video

Finance: What is PMI insurance?0 Views

00:00

and finance Allah shmoop What is PM I insurance All

00:07

right people There's your car insurance your health insurance What's

00:10

that you say you're buying a house with less than

00:11

20% of the home's value is a down payment Well

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guess what that means more insurance for you Yes private

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mortgage insurance PM I accept the PM I isn't insurance

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for you No it's insurance for your bank The interest

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you pay on your mortgage is like interest you pay

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on any other loan which is paying the lender for

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the service of getting money sooner rather than later you

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know via alone But since mortgages are so big while

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they're essentially big gambles for banks if you pay a

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down payment of 20% or more on your house well

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the bank's trust that they'll get all their money back

00:46

because he already paid 20% of the value of the

00:48

house up front and the odds that the home goes

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down more than 20% in value and all that stuff

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in any kind of short term is pretty low right

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So But if you don't put down 20% like you

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know if your down payments 10% or 5% or something

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like that Well then the banks will still let you

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have your mortgage but only if you pay for private

01:07

mortgage insurance to cover the banks for taking on a

01:10

whole lot of risk on you Write so well go

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through an example If someone pays 200 grand for a

01:15

home and they put 20% down well they've paid $40,000

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up front to the bank Then the bank creates alone

01:20

for the remaining 160 grand which the borrower pays off

01:23

over a 15 or maybe 30 years If all else

01:25

goes smoothly since the buyer put 20% down they can

01:28

skip the monthly PM I payments which is kind of

01:31

a big deal right PM I can cost between 1/2

01:33

a percent or 1% of the loan every year maybe

01:36

more depending on you know how bad your credit is

01:38

For instance if that same someone put 10% down instead

01:42

of 20% on that same 200 grand home So that

01:44

means they put $20,000 down took out a mortgage of

01:46

180 grand well since their down payment is less than

01:50

20% of the house price They'll be stuck paying PM

01:52

I which will cost him somewhere around a grand or

01:54

two a year plus taxes and yes PM My payments

01:57

are not act deductible Unlike mortgage it's kind of ironic

02:01

but having less money often cost you more money Yes

02:04

welcome to the real world people because well less money

02:06

means more risk for the bank Well should something go

02:08

awry and you can't make payments anymore well the bank

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has to then sell the house to try to regain

02:13

the money from your defaulted loan And yes it's a

02:16

bummer for you but well it's a bummer for your

02:19

bank to they hate this Truth be told the bank

02:21

would rather not sell your house since that whole affair

02:24

is a whole lot of trouble and cost them money

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and grief and bad press The commission and lawyer costs

02:29

and eviction Sheriff bumper cars you know families being evicted

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all those expenses Yeah they add up This is where

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pm I comes in Private mortgage insurance is insurance for

02:39

your lenders In case you end up getting your house

02:42

foreclosed upon the PM I money You've been paying for

02:45

Your lender goes towards an insurance policy that helps your

02:47

lender recuperate the money they lend you especially if the

02:50

house sells for less than what you originally borrowed Like

02:54

you paid 200004th But you overpaid It really should've sold

02:57

for 1 85 and then the market went down And

02:59

then he had to pay a 6% commission to the

03:01

Realtor And he's only paid two grand of your mortgage

03:04

down And somehow after all the expenses the bank only

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got 146 grand in there $10,000 in the hole And

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that's a big problem right So how do you avoid

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paying PM I You know money that's just going down

03:15

the tubes down the drain and into an insurance policy

03:17

to help your bank your lender a sleep better at

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night Well you put 20% down That's how but we'll

03:23

say you can't afford to put 20% down or it's

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too little too late You already put 10 or 15%

03:28

down on you in that home You're stuck paying PM

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My number's right Well the good news is you can

03:33

stop paying PM I eventually That is you Khun Stopping

03:35

PM I once you've paid off 20% of your home

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or the value of your home is gone up enough

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such that the bank believes that you actually have 20%

03:44

equity in the home as long as 20% of your

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house has yet to be paid for in cold hard

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cash while your bank will consider you in the danger

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zone requiring PM I payments once you have 20% equity

03:54

in your house out right Well whether your initial down

03:56

payment or not while you don't have to pay PM

03:59

eye anymore you know so long as you tell your

04:01

lender right legally they have to stop charging UPM my

04:04

payments Once you tap them on the shoulder and officially

04:06

say Hey guys I have 20% equity in my house

04:09

now So can you like not do it with the

04:11

PM I charges anymore If you forget step them on

04:14

the shoulder When you have that 20% inequity Well don't

04:17

worry They legally have to stop charging you for PM

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I Once you get to 22% equity in your home

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if you put 10% down on that $200,000 house or

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20 grand and made monthly mortgage NPM my payments with

04:28

some extra mortgage payments thrown in until you paid down

04:30

another 20 grand Well now notionally At least you have

04:33

$40,000 in equity or 20% equity in your home Time

04:37

to call the bank and say science art of those

04:39

PM I payments But if you don't if you don't

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tell him if you don't give him a legal notice

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well then you'll keep paying PM I along with your

04:44

monthly mortgage payments you know kind of forever ish That

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is until you have 22% equity in the home which

04:49

is when you've paid 24 grand incrementally in mortgage payments

04:53

down right If you want to save money well better

04:55

to tell your lender to get rid of that PM

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I soon as you can If you put less than

04:58

20% down in your house it's a race to reach

05:01

that 20% equity so that you can stop making these

05:03

pesky PM I payments And besides just paying mohr than

05:06

you have to on your mortgage while for instance making

05:08

a full extra mortgage payment every year which can save

05:10

you a surprising amount of the mortgage interest in the

05:13

long run Just saying there are some other options too

05:16

If the housing market is hot in the value of

05:18

your house has gone up well you can get your

05:20

house reappraised to show they have 20% equity in your

05:23

home just based on the down payment they already made

05:25

and head back to your lender with that good news

05:27

right So in this case if a homeowner put 20

05:30

grand down and took a loan for 180 grand on

05:32

a $200,000 home purchase price and in five years they

05:35

paid down the 180,000 they owed to being well just

05:38

170 now and in that time period the home's value

05:41

one from 200 grand to a new Zillow estimated market

05:44

value of 250 grand then the easy math would let

05:47

the home longer subtract $170,000 in mortgage from the $250,000

05:52

Zillow price showing equity they had in their home of

05:55

$80,000 Well 80 over 250 Yeah that's 32% of the

05:59

homes new value well over the 20% needed for PM

06:02

My insurance If the market's doing that well it's probably

06:05

in the homeowners best interest to refinance at at that

06:07

point in anyway because you probably get cheaper interest rates

06:10

Another thing homeowners can do Besides you know praying to

06:12

the housing gods for a favorable market is to take

06:14

their home into their own hands Literally renovated bathrooms and

06:18

kitchens are too big ese that add significant value to

06:20

a house especially if they were you know outdated When

06:22

he about the house Ah homeowner can get toe work

06:24

sprucing up their home then get it re appraise for

06:27

a higher amount which will have the same effect as

06:29

if the housing market gods were favorable at the time

06:31

And the risk here of course is that if you

06:33

live in a state where it's taxes are based on

06:36

the appraised value of your home when you re appraise

06:38

it at a higher value you risk the tax man

06:41

coming by and raising your taxes So yeah have you

06:44

got in for people Homeowners can do all three of

06:47

these things make extra mortgage payments created the housing market

06:49

gods for favorable market and replace that godawful sink in

06:52

the kitchen that has a questionable permanent stain The sooner

06:56

you get 20% equity while the sooner homeowners will free 00:06:58.868 --> [endTime] themselves of the shackles of PM I payments gloriously

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