April 13

Why do we need Mortgage Protection Life Insurance?

Whole Life Insurance

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In Canada, home ownership has long been a source of tremendous wealth creation. Any Canadian that is willing to work hard, save money, and plan to purchase a property can own a home. 

But our property is not just our most valuable physical asset, it is quite literally our home. The place where we hang our hat, we raise our children, and shelter our family. It gives us safety and security in a world where those things are becoming more valuable.

Through incentives and exemptions offered by the government, Canadians are encouraged to own their homes.

However, with great reward, comes more risk. Because of the appreciation of property values in Canada, it is often very difficult (especially for a young Canadian) to purchase a principal residence without borrowing money.  Even though our home is a tremendous opportunity for us to create wealth and prosper, the mortgage we incur is usually also our largest liability.

Most homeowners in Canada can pay their mortgage and keep their families sheltered while they are working.  But what happens when someone who is on the mortgage, either you or your spouse pass away?  Unfortunately, our monthly expense and our biggest debts don’t just disappear with us. We may inadvertently burden our families with a large debt and monthly obligation that they cannot manage on their own.

Chances are that whoever’s name is on the mortgage is also a major contributor to the household income. That’s why the household was able to obtain a mortgage in the first place. In the event of a death, that income is no longer available, leaving your loved on’s critically short in funds.

If mortgage payments are not made, then after 3 months the bank can begin foreclosure proceedings on the property, leaving your family without a home to call their own. Families that acknowledge this reality quickly look to sell their properties, but what if because of real estate market conditions it isn’t the best time to sell? Depending on how long you have owned the property, realtor fees, and market conditions, you may lose tens of thousands of dollars if the property is sold at the wrong time.  Also, depending on the term’s and conditions of your mortgage you may have to pay hefty fees for paying the mortgage before the term of the mortgage ends. If the property isn’t sold for enough, then the mortgage may not be paid off in full and your family members may be left with the burden of a debt without the benefit of a home.

These are some of the things that keep Canadian’s up at night. It is an outcome that many in Canada have had to face, but almost always could’ve been avoided.

How can we use Mortgage Protection Life Insurance to our benefit?

Mortgage life insurance was invented because some things shouldn’t be left to chance and our families financial security is one of them. Mortgage life insurance is a type of life insurance policy that pays a lump sum tax free death benefit to your beneficiaries if you pass away. It provides a safety net to your family that will provide much needed capital when they need it most. 

With a life insurance policy to cover the mortgage amount or more, your beneficiaries will not just survive but have the best chance to thrive. With the capital that they receive they will have many options, but more importantly they won’t have to be burdened with the prospect of mortgage foreclosure when they are grieving the loss of a loved one.

If the real estate market is doing well and it is a good time to sell the property, they can dispose of the property. They will realize a profit, paying off the mortgage.

If interest rates are very low and the cost of having a mortgage is affordable, they can use the money to invest. The income that they get from their investments can be used to help pay the mortgage on a month to month basis.

Of course, they can just pay off the mortgage in full with the death benefit proceeds; so that they will have a paid off home.

Your beneficiaries can do whatever is right at the time. They can use the money to pay off other debts, or any funeral expenses that have come up.  Some money can be left aside to pay for future expenses that may exist, such as paying for a child’s education.

You will have the peace of mind of knowing that whatever happens, your family’s financial stability is something that you are not leaving to chance. The mortgage protection life insurance policy that costs you a few dollars a month is going to step in if need be and replace the income you provide and that your family depends on.

With a lump sum tax free death benefit, your beneficiaries can buy themselves time to recover from the loss of a loved one. Their future will be secure because they can use the money to buy financial stability and keep their homes. mortgage protection life insurance has been playing a critical role in keeping families in Canada financially secure for ages.

How much Mortgage Protection Life Insurance do I need to own?

Although Mortgage life insurance is often used to pay off the mortgage, it can be far more beneficial if used as a financial planning tool.

Many people don’t know that when applying for mortgage life insurance they can apply for a death benefit that is more than their mortgage amount. In fact, the best thing to do is consult with a life insurance broker who can do an insurance needs analysis for you to help you determine how much life insurance coverage you need.

Paying off your mortgage is usually the minimum benefit that we can get from a life insurance policy. When structured properly, mortgage life insurance can not only pay off your mortgage for you, but also leave your family debt free. It can replace your income for many years, pay for future expenses such as a children’s education, and even pay for your funeral expenses. 

To give you a baseline formula to calculate how much mortgage life insurance you need follow these three steps:

  1. Add up all of your liabilities including mortgage, car loans, credit cards, and any other debt (to leave your family debt free).
  2. Take your after tax income and multiply it by 10 (to replace your income for ten years)
  3. Add $15000 for funeral expenses and $50000 for each child that you have (to pay for their college education)

Let me give you an example:

Jonathan is a 35 year old male, who doesn’t smoke, and is in reasonable health. He makes $50,000 a year after taxes and is married with 2 kids. He and his wife owe $5000 on their credit cards and $10,000 on car loans. He also owes $400,000 on his mortgage.

Based on our formula he would need:

  1. $415,000 to pay off his debt’s and mortgage
  2. $500,000 to replace his income for 10 years
  3. $115,000 to pay for his children’s educations and his funeral expenses

For a grand total of $1,030,000 of mortgage life insurance. This would allow him to secure a paid off home for his family, replace his income for 10 years, and pay for his children’s education if he was to pass away. Once this life insurance policy is put in place, he will know that his family won’t have to worry about their financial stability.

How much does it cost to own Mortgage Protection Life Insurance?

For most people that are in a situation like Jonathan’s, they can rest assured that Mortgage Protection life insurance will be affordable. Everyone’s situation will be different but for a 35 year old, who doesn’t smoke, and is in reasonable health they can expect to pay around:

                                                               

Mortgage Only   + Debts/Income/Future Expenses

35 year old Male               $30/month                          $50/month

35 year old Female           $25/month                           $46/month

For a 20 year term life insurance policy. The premiums could be even more affordable if we shorten the term of the policy. These figures are not exact, and everyone’s situation will be different, but this is meant to give you an idea. 

As you can see, a few dollars a month is all that it takes to secure your family’s financial stability if you pass away. It’s a very small price to pay, especially if you think of how potentially catastrophic the alternative would be if you passed away when you had no mortgage protection life insurance in place.

How can I own Mortgage Protection Life Insurance?

Depending on your situation applying for the wrong type of mortgage protection life insurance can be a costly mistake and so could applying to the wrong life insurance company.

The best way to own Mortgage Protection Life insurance is to consult a life insurance agent. They will take you a through a simple process that will determine how much life insurance is needed. Then they will get you a free quote so that you know what the investment would be to own the policy.

Because of their extensive knowledge of the life insurance market in Canada they can answer any questions that you might have and match you up with the ideal insurance company for your health and lifestyle. This can save you thousands of dollars in premiums. You never have to pay to get the value of advice from an insurance broker as they are paid by the insurance company.

Book an appointment today to get in contact with a life insurance agent and start securing your families future today.

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