If I could show you a way to not only save on your mortgage insurance, but also get you coverage that is much better than you what you currently have, would that be of interest to you?
Well here it is: Don’t get your mortgage insurance from the bank!
Why? Because banks don’t sell insurance, they can’t, it’s against the law, they can only sell you creditor protection. Creditor protection is not insurance, insurance is something you buy to protect yourself. Creditor protection doesn’t protect you, it protects the banks. Let me explain
noun: creditor; plural noun: creditors a person or company to whom money is owed.
Creditor protection -> Protection for a person or company who you money owe to.
When you have a mortgage the person or company to whom money is owed is the bank. So when you buy creditor protection you are buying something to protect the bank. This is why when the bank offers to sell you creditor protection. It is usually more expensive and an inferior type of protection than if you were to get proper mortgage insurance from licensed brokers at Easy Insurance.
Here are the top reasons why you should never get creditor protection at the bank
It is usually more expensive
Creditor protection is group coverage. This means that when calculating your premiums they are putting you into a group of people that have similar age/gender profiles as you. They then come up with an average of that group which represents the premium that you pay. So even if you are incredibly healthy you are being grouped together with people that may not be healthy when it comes to the mortality tables that the bank will use to calculate how much you have to pay as a premium. Unless you have serious health problems already you will probably save money if you apply for mortgage insurance individually and have significantly better protection. It really is an obvious choice once you layout all the differences and even more so if you are already paying for mortgage insurance through the bank.
It is underwritten at the time of claim and not at the time of application
When applying for creditor protection you are told that the coverage is in place after answering just a few simple questions. However, the coverage that you have is not what you might be expecting. Since they have not gone through a proper medical questionnaire or any other medical examinations before they give you the coverage they are going to do the examinations afterwards. Yes, after you die, they will start to scrutinize your answers to the questions on the initial questionnaire by looking at your medical history. Then they can look for inconsistencies and claim you answered the questions incorrectly so that they can refuse your claim and leave your family high and dry.
This will not happen if you apply for regular mortgage insurance because it is underwritten at the time the application is made. The questionnaire is more comprehensive and depending on the amount of the death benefit there is often a medical exam. The insurance company does all of their due diligence before hand. This way, once they agree to cover you it is a rock solid contract that means your family will be protected if you pass away. The only way they will not pay is if it is proven that you committed fraud on the application by intentionally lying about a material fact.
Creditor protection is a coverage that reduces over time
As you pay your mortgage off, since creditor protection will only pay your mortgage off for you, the benefit decreases as your mortgage decreases. But here is the catch: your premiums remain the same. So you keep paying the same, but the bank covers you for less and less. Great deal for the bank, not so much of a great deal for you.
The benefit is paid to the bank not you
Because creditor protection is something you pay for to protect the bank and not yourself, when the benefit is paid it is paid to the bank and not you. Even if your intention is to pay your mortgage off with the proceeds, regular insurance will give you control and allow you to use the funds however you prefer. You have no obligation to pay your mortgage off in full.
The coverage expires when the mortgage is paid off
Real mortgage insurance (also known as life insurance) can last however long as you want it to; a short period of time, a lifetime or somewhere in between. However, creditor protection will expire when the mortgage is paid off, leaving you with no coverage and perhaps at a time when you may be unable to be approved for a proper policy due to health issues.
What’s even worse is that if you have coverage for, lets say, all 3 products (life/critical/disability) then if one of them pays the mortgage off you will actually lose coverage from the other two products and be left with nothing! Crazy right?
You have less choice
If your creditor protection offers critical Illness and disability coverage along with life protection then it is usually bundled together. With real mortgage insurance you can choose to add critical illness, disability, or life insurance as separate policies. You can have all of them or just one or two.
You don’t control the policy
Because the bank controls the policy, they can choose to withdraw coverage at any time. If you choose to change your mortgage lender, you will lose the coverage and you may have to re-apply and pay a higher premium because you may be older.
To summarize, the biggest mistake that we see people making when they are getting mortgage insurance is to end up getting creditor protection at the bank instead. They often don’t know that there is a difference and as a result will end up paying more, and getting coverage that protects their lender, not their family. To learn more, request a quote and one of our licensed insurance professionals will reach out to you, or contact us for more information. Alternatively you can book an appointment with us here.