Alternatively, if you have $40 per month to spare and want to hand your home down to your daughter and her children, then put the $40 toward prepaying your mortgage. Here's how it works. When you send extra principal each month to the mortgage company, (you must make sure your bank knows you intend your overpayment to go toward principal) that means there is less principal for the mortgage company to charge you interest on. You finish paying off your mortgage years early and save thousands in interest! Let me spin this out for a moment with a little guess work. Let's say you have 10 years left on your mortgage and your interest rate is 7 percent. By sending in just $40 extra per month, you will save $1,870 over the life of the loan and have the mortgage finished off 13 months early.
If everything else remained the same, but you were able to bump up your monthly extra payments to $60, then you would save $2,638 in interest and finish paying off your mortgage 19 months early. That is the awesome power of reverse compounding. Here is a terrific calculator for anybody who wants to investigate how much time and money prepaying would save them.
The third reason I am against the credit life idea is that the premiums for credit life insurance are usually much higher in relation to what these policies pay out than regular life insurance policies. Some consumer advocates have even labeled credit life a "scam." I won't go so far, because I define scams as fake offers meant only to steal your money. Credit life is more of a rip-off. It's a real product, but usually terribly overpriced and misunderstood. You would be better off shopping around for a new standard life insurance policy, to see what you can get for $40 a month. I hope this answer gives you –and everybody reading—more clarity. Good luck!