D Smith: Mortgage insurance vs. life insurance
Most banks and lending institutions offer mortgage insurance.
First, they finance your mortgage, and then they try to sell you mortgage insurance to cover your mortgage debt.
These are both huge profit centres for the lending institutions.
Don’t be in a rush to sign creditor type of mortgage insurance papers. You do not have to purchase mortgage insurance from your lending institution.
Take the time to shop around for life insurance and mortgage insurance. If you shopped for mortgage interest rates with a mortgage broker, you should shop for life insurance/mortgage insurance with an insurance broker. A broker will shop the entire market for the best rates and product coverage for you.
Do not assume the company which provided you with the best interest rate on your mortgage, will provide you with best rates on your mortgage insurance. It is not likely to happen.
What is the best consumer choice? Here is the key differences between mortgage and term life insurance.
Mortgage insurance pays the balance of the mortgage debt to the lending institution if the person on the mortgage passes away.
The lending institution is listed as the beneficiary of your policy.
As your mortgage debt decreases, the payout decreases accordingly. You pay the same monthly premium for a reducing amount of coverage as you decrease your mortgage debt. The cost of mortgage insurance becomes very expensive as time passes.
The lender can make changes at any time to the premium or the benefits, because your mortgage insurance is part of the bank’s group policy. Mortgage insurance is underwritten after death. Health checks are very minimal during the application process. You are not guaranteed to have your mortgage debt paid out.
A personally owned term life insurance provides many benefits. You own your insurance; you choose the coverage amount, you choose the length of term, and you choose the beneficiary.
The death benefit is paid tax free to your named beneficiary shortly after death. Personally owned term insurance protects your family.
The proceeds from your term life insurance can be used in any way your beneficiary decides, they may use the money to repay the mortgage; may choose to pay higher interest credit debt; or have funds quickly available for immediate living expenses or to pay for final funeral costs.
Non smokers pay a substantial discount to smokers with life insurance. On traditional mortgage insurance, there is no discount given to non smokers.
A mortgage is one of the single largest debts Canadian’s assume.
Most individuals and families take the time to comparison shop for their mortgage—searching for the best interest rates and terms.
As soon as you have secured the best rate and term for your mortgage, make sure you contact a life insurance broker to discuss the right type of insurance protection for your mortgage debt.
Mortgage insurance will make the financial institution richer.
Doreen Smith is a certified financial planner and life insurance broker with Capri Wealth Management Inc.