Life Insurance for Your MortgageBuy It From the Bank or Get Your Own?
When it comes to our mortgage most of us will take the time to shop around for good interest rates and terms that suit our needs, but we may be inclined to take whatever is offered, or "the path of least resistance" when it comes to mortgage life insurance. This easy route tends to mean much higher costs for you with less flexibility and less certainty.
First, you need to see this CBC report on "Marketplace" which shows that you may actually faithfully pay your mortgage insurance premiums but when either you or your spouse dies you may not actually get anything.
Click here to watch the full CBC Marketplace report.
Here are the other facts on mortgage life insurance, the kind sold by banks with your mortgage:
- If you purchase mortgage insurance from your bank or credit union, you are purchasing creditor's group insurance.
- You are a certificate holder not an owner of the policy. The bank may make changes to the coverage without your consent, and coverage will terminate as soon as the mortgage is paid off.
- The premium you pay remains the same, but the coverage decreases along with the balance of your mortgage. You are paying a level amount but the coverage is decreasing.
- You are not able to name your own beneficiary. If something should happen to you, the bank receives the insurance proceeds directly.
- If you decide to change banks at a later date, you will have to reapply for insurance coverage. You will pay rates based on your age at that time, and if your health has changed, you may be declined.
- In most cases, creditors group is based on "blended rates," meaning that smokers and non-smokers pay the same amount for the same coverage. If you live a healthy lifestyle, you will pay the same amount as someone who is overweight and smokes a pack a day.
If you buy your own policy:
- You have a policy that you own and you are completely in control of. An individual mortgage insurance policy, obtained directly from an insurer, puts you in control of your own coverage.
- Because you own the policy, if you decide you want to keep some or all of the insurance after the mortgage is paid off, you may do so. That is your choice and your choice alone.
- Your insurance is for a fixed amount - it does not go down. If you purchase a policy for $200,000 and you die when your mortgage is only $100,000, your heirs will still receive the full $200,000.
- You may name whomever you please as beneficiary - spouse, child, grandchild or friend. They receive the funds directly from the insurance company, meaning they are free to decide whether they want to pay off the mortgage or use the money for another purpose.
- An individually-owned policy is fully portable. When your mortgage renews, you are free to shop around for the best rate. If you decide to change lenders, your individual policy will come with you, completely unchanged from when you first obtained it. You will not have to reapply for coverage, and your premiums will remain unchanged.
- An individual policy is underwritten based on your individual circumstances. If you lead a healthy lifestyle you pay a much lower rate and get better coverage.
- If you need more life insurance than the amount to cover you mortgage you will be able to have 1 large policy instead of 2 policies. This will further reduce your insurance costs, as life insurance is cheaper on a cost per thousand basis. The more you buy the better value you get.
Some cost comparisons (life insurance on $300,000 mortgage):
Bank of Nova Scotia - $84 month
TD Bank - $60 month
Equitable Life - $32.75 month
If you have any questions as it relates to your situation please feel free to call (604 541 2690) or e-mail me directly (firstname.lastname@example.org).
Chartered Financial Planner