Mortgage Life insurance… what’s this all about?

You’ve bought a house… you’re arranging the mortgage financing… and now your broker or banker starts talking about life insurance or mortgage life insurance…..   sound familiar?   Choosing the wrong coverage could cost you dearly.

Today, we’ll clear up some things very important but often overlooked subject.

Does anyone really enjoy talking about life insurance?  I don’t, but we must understand what this product is all about…and why you shouldn’t just waive the coverage.

Life insurance and mortgages go hand in hand.   After all, for most of us a mortgage is the biggest debt we’ll ever have.   And if you should exit this world before that mortgage is paid off, the only thing you want to leave behind are good memories, not a big mortgage payment.

Mortgage Life Insurance or Creditor Insurance as it’s more commonly known with the finance world, is insurance that covers your mortgage balance as of the time of death.    This is not my favorite insurance product but it does have it’s place and it can be used temporarily by most of us.   Here are some good and bad points about the product:

THE GOOD

• it’s group insurance, meaning it’s easier to qualify for as there are less questions asked.
• coverage can be instant, as of the mortgage approval.
• it’s good short term coverage until you get a more comprehensive analysis done.  (I can’t tell you how many clients took this insurance temporarily but continue with the policy for years…. we all love to procrastinate when it comes to insurance).
• for smokers or those in less than great health or poor lifestyles, this could be a good option.
• this insurance can be cancelled at any time.

THE BAD

• your coverage decreases as you pay the mortgage down… but your premiums remain the same.
• it’s more expensive than most other forms of life insurance such as term policies.
• speaking of term insurance, your coverage remains the same throughout the 10, 15 or 20 year term that you choose, making this a more enviable product.
• mortgage life products are not underwritten at the time of application but only at time of death… and your claim can be denied even if you had been paying the insurance premiums for years…
• your BANK loves mortgage life insurance.   At renewal, when you’re 5+ years older, they will use this against you to get you to sign their renewal… meaning you may not be able to shop for the best mortgage rates!   (Don’t think the BANKs don’t know this.. as a former banker, we were encouraged to use this sales tactic).

HOW TO BENEFIT

Take the mortgage life insurance, speak with your insurance advisor, get your needs reevaluated, get better coverage elsewhere if possible, then cancel the mortgage life insurance..  Yes, in other words, use mortgage life insurance as a temporary coverage…. And please get your insurance needs looked once in a while.. at least every 5 years.

If you have any comments or if you need help finding a reputable insurance advisor, call me.   I’m always happy to help.

Steve Garganis

416 224 0114

steve@mortgagenow.ca