Click to listen to Deborah Slywchuk speak about the potential dangers of mortgage insurance.
Life insurance is a crucial element of your financial plan- it is there to protect you and your family, should the unexpected occur. If not properly educated about life insurance, families can be unaware of the potential dangers of mortgage insurance. Insurance is a complicated topic, and mortgage professionals who sell these products are usually not trained or licensed to sell life insurance. Professionals strongly recommend that you do your homework, educate yourself about life insurance, and work with a qualified financial planner to sort through your options.
Life Insurance claims are paid out when needed.
The biggest issue with insurance from banks is that they have post claim underwriting, which basically means that the underwriting will be done after a claim has been submitted. Technically you could be declared uninsurable after you have submitted a claim and your claim could be denied. If you purchase life insurance directly from your insurance advisor, all underwriting will be done before the policy is issued, so you know that your claim will be paid out when needed, according to the terms of your contract -unless you are fraudulent at the time of the application.
Life Insurance allows you to name a beneficiary.
A primary difference between banking insurance and life insurance is that with banking insurance, the bank is the beneficiary. You do not have the option to name a beneficiary, so you are protecting the banks interests, not that of your family. With individually owned life insurance, you name your beneficiary, or can be payable to your estate to be used in any way needed.
Life Insurance coverage and cost remains stable.
Secondly, the amount of insurance coverage at the bank will decrease as you pay down your mortgage but the premiums remain the same. In some cases premiums were actually increased as you fall into the higher age bracket. Individual life insurance plans will remain at a level cost for either a preselected term or permanently, depending on the contract you selected. Also, the full amount of insurance coverage would be paid out at the time of claim.
Life Insurance is flexible.
Creditor insurance with one bank is not transferable to another lender. If you switch lenders you have to reapply for the coverage. Life insurance will follow you regardless of where you hold your mortgage or debt as it is not tied to the lenders at all. The payout for creditor insurance will only be used to cover the balance of your mortgage, whereas life insurance can be used to pay funeral costs, debts, leave an inheritance, or anyway your beneficiary or estate representative sees fit. The bank insurance cannot be modified in any way, while life insurance can be changed as your situation changes. Many people opt for mortgage insurance, tempted by the ease of the application process and in some cases the lower premiums. These factors come with a huge risk, and the time spent now could save your family great pain in the future. CBC Marketplace ran several stories about life insurance versus mortgage insurance which highlight the stories of Canadians who have experienced denied insurance claims. If you need life insurance to protect your family, contact a professional financial planner to schedule a strategy session and determine the appropriate insurance coverage for your family. A strategy session can also help with wealth management, retirement planning, and tax minimization strategies.