How to get more for less when it comes to your mortgage insurance
If you have a mortgage then it makes sense to ensure it. Owning a mortgage free home is a primary goal of any Canadian family. Moreover, ensuring your home loan is paid off in case of your passing will protect your family, keeping them safe and secure. However, in this article we are going to take a look at two ways in which we can go about this. Life insurance vs mortgage insurance (Creditor Protection)
The real question is: should you get this insurance from your lender or from a licensed insurance professional? When it comes to income protection, getting help from a specialist can save you thousands of dollars in premiums over time, and get you the most comprehensive coverage.
I know that signing an additional document while at the lenders office confirming your new mortgage is an easier way to get coverage. But know that not all coverage is the same and failure to do your due diligence can cost you more than you think in the long term.
The top 8 reason’s why it pays to get life insurance vs mortgage insurance (Creditor Protection) at the bank
Life insurance, when obtained from a true life insurance company is usually more affordable than creditor protection which is what you can get from the bank. This will definitely be the case if you are a non-smoker. Insurance companies will go through a more comprehensive underwriting process and be able to offer you the best rates in the market.
It’s possible that if you have a pre-existing medical condition lender’s will not approve you for creditor protection. This may not be the case if you are using a licensed insurance broker. The reason for this is because brokers have access to insurance companies that can approve you for insurance regardless of your medical history and often without a medical exam. You can also get coverage that will make your payments for you in the event that you get injured, or get a life threatening illness.
More options means better, more affordable coverage for you.
As time passes and you make your payments the amount that you owe on your mortgage decreases. Because creditor protection does not pay a death benefit to you but instead pays off your mortgage, that means your benefit is decreasing in value every month. That would be great if your monthly payment is also decreasing, unfortunately, that is not the case. You will keep paying the same amount every month but the bank will need to pay less of a benefit as time goes by. Great deal for the bank, not so much for you. If you’ve paid your mortgage off for any reason you lose your coverage completely!
When you own a policy that is obtained with the help of an insurance agent, you have all the control. You choose the initial amount of coverage and you can reduce or increase that coverage when you see fit.
The Ability to Port the Mortgage
Because a proper mortgage insurance policy is not connected to your mortgage, if you ever change lenders you do not have to give up your coverage. Having to re-apply for coverage after you go to a new lender might mean higher premiums, or worse, being denied coverage because your circumstances have changed.
In contrast to loan protection, mortgage insurance can be for a higher sum than simply the home loan balance so you can ensure family income needs and different commitments with your policy as well as your mortgage.
Creditor Protection will never be for more than your mortgage and if it includes disability or critical illness protection they will be lumped up into one premium. With real insurance you can keep policies separate, convert term coverage to permanent coverage and reduce or increase your coverage making it the most flexible way to protect you and your family from the loss of income that a death may cause.
Your beneficiaries will decide how the death benefit is used
With creditor protection you have no control over how the funds will be used by your beneficiary because they do not actually go to the beneficiary, they go to the bank. Understand this: when you get creditor protection it is to protect your creditors (the bank). When a death benefit is paid it is paid directly to the bank and will be used to pay off your mortgage whether that is what your beneficiaries want or not. In a situation where interest rates are at lows it may not make sense to use the proceeds to pay off the mortgage. Perhaps the funds can be used to purchase other investments or to pay down other higher interest rate debt. With proper mortgage insurance protection the choice is with your beneficiaries not with the bank.
Could your death benefit claim be denied?
The chances of a claim being denied if you do pass away will be much higher if you get creditor protection from the bank than if you had mortgage protection insurance. This is because creditor protection is underwritten at the time of claim so when someone passes away that is when they start to look at the application and try and find some inconsistencies or irregularities so that claims can be denied. This may come as a surprise to you but financial institutions are in business to make money and if they can avoid paying hundreds of thousands of dollars to pay your mortgage out they will.
Proper mortgage life insurance is underwritten at the time of the original application so the insurance company will do all of their due diligence before hand. This way, the contract is rock solid. In fact, after 2 years, the only way coverage can be denied is if the applicant committed fraud on the application.
The Value of Advice
If you need a mortgage you should go to a mortgage specialist. If you are insuring your mortgage you should go to an insurance specialist. Insurance brokers can customize a plan that is tailored to your unique situation. Their knowledge of what insurance companies can, and cannot allow will help them to connect you to the insurance company that will give you the best terms and conditions while saving you as much money as possible. This can save you thousands of dollars in premiums. It does not cost you anything to get the value of advice. Your broker will be paid by the insurance company and never by you. So what do you have to lose? Get a free consultation with an insurance advisor.
Your home will probably be the biggest purchase you make in your lifetime. Assure that your family gets to keep it if you pass away. This is best done if you work with an independent life insurance adviser. If you have already obtained creditor protection to ensure your mortgage, not to fear. Reach out to an insurance professional so that they can get you proper coverage. It costs you nothing to apply so get a no obligation quote and start saving money!
Looking at the above, there is a clear winner in the life insurance vs mortgage insurance (creditor protection) debate. It almost never makes sense to go with creditor protection from the bank.