Mortgage Insurance – Don’t bet your Life on it
January 17, 2014
Jon Glougie CFP®
Investment Advisor, HollisWealth
Insurance Advisor, Hollis Insurance Agency Ltd.
Do you have a mortgage? If so, do you have mortgage insurance? If the answer is still yes, you owe it to yourself, and your loved ones, to read this.
Personally held Life Insurance is a far more sensible option to help you protect your family and your assets. Let’s look at some of the key contrasts between Mortgage Life Insurance and personally held Life Insurance.
As you pay down the balance of your mortgage, your mortgage insurance benefit decreases (only the balance of your mortgage is covered), but your monthly premium remains level. Month after month and year after year, you continue to pay the same amount as you watch the value of your Mortgage Life Insurance steadily decrease. Would you do the same with your investments? With personal Life Insurance, you pay a level monthly premium for a level benefit.
When you buy Mortgage Life Insurance, the lender is your only beneficiary. When you buy personal Life Insurance you get to name your own beneficiary. With Mortgage Life Insurance, while you are alive, you pay to protect a Lender, not your family. When you pass away, the lender gets to recoup their mortgage loan. When you buy personal Life Insurance, you get to name your own beneficiary, and your beneficiary gets to decide how to use the proceeds.
With Mortgage Life Insurance, your insurance is linked with your mortgage. If you transfer your mortgage, you will need to re-apply for your insurance. With personally held Life Insurance, your insurance is linked to you, not your mortgage. Therefore, if you transfer your mortgage, your life insurance can come with you.
Post Claim Underwriting
Perhaps the most dangerous aspect of Mortgage Life Insurance is the “post claim underwriting”. This means that the insurance provider will essentially underwrite you (determine whether or not you are insurable) once a claim has already been made (once you have passed away). The insurance provider (through your lender) will be more than happy to accept your premium every month, but they will be less excited about paying out a lump sum benefit in the case of death. This isn’t to say that your policy won’t pay out to your beneficiary (the lender) if you do pass away, but don’t make the mistake of assuming that it will. The lender can also decide to cancel your insurance or change the terms of your coverage at any time. With personal Life Insurance, you have all of the underwriting done up front, and when you enter into a contract with the life insurance company, you own a legally binding contract.
These are only a few of the many pitfalls of Mortgage Life Insurance. The biggest debt you will probably ever have (especially in Vancouver) is your mortgage. Don’t leave yourself, or your family, at risk. Personally held life insurance will provide you with better coverage to help protect your family’s assets.
HollisWealth is a trade name of Scotia Capital Inc. and HollisWealth Insurance Agency Ltd. HollisWealth is a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Brokerage services provided by HollisWealth are provided through Scotia Capital Inc. Insurance products provided by HollisWealth are provided through HollisWealth Insurance Agency Ltd.