The Dark Side Of Mortgage Insurance
Buying your first home is one of the most exciting times. Your mind is running at a high speed of planning your future. Excitement is in the air and this is one of those times in life when emotions overflow as the individual/couple is making one of the biggest investment decisions of their lives.
After you just spend months shopping for your dream home you finally make the decision to purchase the home you can imagine your future in it. In your mind you’re already planning the changes you have to make so the house will become your home.
This is the time when for weeks you are shopping for the best mortgage rate. Your lender suggest taking out mortgage insurance to protect your prized assets.
Your home is probably the biggest investment you’ll ever make. When you arrange a mortgage with a financial institution they must ask you if you want to insure your mortgage through them.
When years ago we brought our first home and I didn’t have much knowledge about how mortgage insurance works my broker looked at me and she said:
“Legally, in Canada Mortgage Brokers MUST to offer Mortgage Life Insurance with every mortgage they place. We are no insurance people, and even if we don’t believe in the product, legally we are bound to offer it. I prefer to advice my clients to talk with a Financial Planner, who is an expert in the field, someone who will actually see that you are qualified AND covered in case the worst happens”
Then she looked at my 3 kids and said:” Make sure you have a personal term insurance, as you have 3 kids and can’t take a chance”. I was blessed with the right broker because at that time I would take whatever she would offer me, I didn’t know better and I trusted her. Sometimes just because people are nice and we “feel” that we can trust them they may not always put your best in front of their commission.
On the surface it sounds like a good idea: protecting your loved ones against a serious illness or death seems like a prudent decision, so at the lender’s suggestion you decide to take on the premium to your mortgage payment.
This scenario unfolds hundreds of times each week throughout Canada, yet many consumers still do not realize that they may getting ripped off.
The basic premise behind mortgage insurance is sound; the problem is that, in most cases, consumers blindly sign up without taking the time to examine their options. Mortgage insurance offered through a lender just does not offer the flexibility available with individual insurance policies offered through life insurance companies, and in most instances the coverage is significantly more expensive through a lender.
But mortgage insurance from your bank or mortgage lender may not be your best alternative.
Life insurance gives you more options and greater control over your mortgage protection. Compare these advantages to what happens when your mortgage lender insures your mortgage: < table class="MsoTableGrid" style="background: #e8dcca; border-collapse: collapse; mso-border-alt: solid windowtext .5pt; mso-yfti-tbllook: 480; mso-padding-alt: 0in 5.4pt 0in 5.4pt; mso-border-insideh: .5pt solid windowtext; mso-border-insidev: .5pt solid windowtext;" border="1" cellspacing="0" cellpadding="0">
Life Insurance
Mortgage Insurance
Underwriting: When you apply for individual insurance through a licensed insurance broker your medical history will be examined before a policy is issued and you start paying premiums. The insurance broker will ask detailed questions and may arrange for a nurse to conduct a physical. You will know upfront whether or not you are covered.
Post-Claim Underwriting: Unlike individual life insurance, credit insurance sold through the bank is usually not underwritten until a claim is made. This means the insurance company may determine you are not eligible for a payout even though you have been paying premiums. For instance, a claim may be denied because an investigation of your medical records indicates you once had high blood pressure or high cholesterol that you did not disclose.
You can choose from different types of insurance (i.e. term or permanent) with a death benefit to cover more than just your mortgage.
Your insurance covers only your mortgage balance.
Your coverage amount does not decrease over time unless you choose to change it.
Even though your mortgage debt reduces over time, your premiums remain level.
If you take your mortgage to another company you keep your existing insurance, so you don’t have to re-qualify.
If you take your mortgage to another company, you may lose your existing mortgage insurance and may be required to re-qualify for new mortgage insurance.
As long as premiums are paid your coverage remains in place, even if your mortgage is repaid, assumed or in default.
You lose all your coverage when your mortgage is repaid, assumed or in default.
Individual premiums: With an individual life insurance policy, the premiums you pay are based on your individual risk. Your health history and exam will help to determine how high or low your premiums are. Non-smokers and women pay a lower premium. The face amount of the coverage remains level.
Standard premiums: The mortgage insurance policy sold at the bank is a one size fits all policy. This means everyone who qualifies is considered to be of equal risk. The premiums you pay on mortgage insurance are a fixed amount based on your age and the amount of your mortgage. There is no discount for non-smokers or for women. The premium does not reduce as the mortgage is paid down.
You choose the beneficiary: With an individual policy you are free to choose the beneficiary or beneficiaries. If something happens to you, it is up to your beneficiaries to decide what to do with the insurance proceeds.
The bank is the beneficiary: Mortgage insurance is designed to pay off the bank if anything happens to you. Therefore the insurance payout will be made directly to the bank.
Fixed payout: When you purchase an individual insurance policy you pay premiums for a pre-determined amount of coverage. Therefore, if you pay premiums for $100,000 of coverage your beneficiary will receive $100,000.
Decreasing payout: The Mortgage insurance sold at the bank covers a decreasing amount. While your premiums remain the same the amount left on your mortgage decreases. Mortgage insurance will only pay off the balance of your mortgage when you make a claim.
Wouldn’t it be better to own your policy and maintain control over this important type of protection? Give your loved ones the peace of mind they deserve. Before you sign anything ensure you have the right protection! Don’t just assume you are covered make sure you understand and know the product you have it the best for you and your family.
Related posts:
- Term Life Insurance
- How Term Insurance Fits?
- New Auto Insurance Reforms in Ontario
- The New Canadian Mortgage Rules
- Have You Made These Life Insurance Mistakes?
i never had life inssurance with a bank, knew this long time ago but i am pleased to know you are informing every one I always tell my friends the samething bravo
I believe there is a lot of information what each individual should know. Unfortunately, the financial industry is very self-serving and places their own interest before those of the investors.
What aggravates me a lot is the fact that Mortgage Insurances is sold as a benefit to you, as a protection and people believe that they ARE protected, when the fact is that there is NO guarantee at all! How could it be if they underwrite the policy at the death of the insured?
In many cases when you apply for a mortgage you only have to sign if you choose NOT to take the mortgage insurance. Most of the times they only ask you: “would you be interested to have insurance in case something would happen your mortgage balance will be paid off”?? Sounds good isn’t it. But it’s a rip-off because you just pay but there is NO guarantee that actually you will receive the payment if something happens.
This is some valuable information, I just wrapped up my paper for class and think i may need to bookmark or save this for the second class lol. You may have just made me a regular
Fairly great article, very informative stuff. Never imagined I would discover the facts I would like in this article. I have been hunting everywhere in the net for some time now and had been starting to get disappointed. Luckily, I stumbled onto your website and received precisely what I had been searching for.
[...] To find out why a mortgage insurance my not be your best alternative GO The Dark Side of Mortgage Insurance [...]
Bradley,
The Mortgage industry can be sometimes interesting and unfair. Thanks for visiting and for your comment. Hope to hear from you again.
[...] find out why a mortgage insurance my not be your best alternative GO The Dark Side of Mortgage Insurance Piri D. – About the [...]
[...] To find out why a mortgage insurance my not be your best alternative GO The Dark Side of Mortgage Insurance [...]