Mortgage Insurance with a bank vs. Life Insurance Advisor
This blog is for anybody who's recently bought a property in Canada and now has a mortgage on that property.
What we are going to cover is the mortgage insurance that you are, probably, offered from your bank or lender.
Then we will go over about working with a licensed life insurance advisor and the differences between the bank version and trusting a professional advisor.
Mortgage Insurance with a Bank vs. Life Insurance Advisor
In Canada there's a huge difference between the mortgage insurance that's offered from banks and lenders and actual proper life insurance, critical illness, or disability that's offered through licensed life insurance advisors.
There have been countless articles written on this topic that show kind of the big differences and some of the pitfalls and we've made some of them available here on our website.
There's an excellent documentary from CBC Marketplace called “In Denial” that really gets into the differences and into the how and why.
You can search it as “CBC Marketplace In Denial” on YouTube.
When you watch that you're probably going to get mad but that's okay, we're here to help you get through that.
Major Differences between the Two
There are some major differences between the mortgage insurance you'll get out of the bank versus what you'll get within a licensed insurance broker.
When you get your mortgage insurance at a bank, the insurance is to pay off the mortgage amount.
So, as you pay off your mortgage and your balance declines, your premiums stay the same.
This means you’re paying the same price for less insurance over time.
When you get your insurance with a licensed insurance broker, you'll be paying a level premium for the term of the insurance, and you will receive a level benefit.
What this means is you will pay the same price every month or year and you’ll get the same death benefit the whole time.
You will actually get what you pay for.
When you get it from the lender, they are automatically the beneficiary which means if something happens to you their mortgage gets paid out.
Which means, the bank gets the money.
Your wife or husband your kids or whoever you want don’t get the money, so they don’t have the choice on what to do with the money.
They might want to pay off the mortgage but they might not.
When you have your own insurance, you get to name the beneficiary and that could be anybody.
The insurance company would pay out to whatever beneficiary you say and then they decide what to do with the money.
If in the future, you decide to change your mortgage which includes refinancing with another bank you would likely lose your original mortgage insurance and then you’ll have to reapply with the new lender.
If your insurability has changed in the time since you got the original mortgage it could be difficult or impossible to get new life insurance.
When you get your insurance from a licensed insurance broker, you wouldn't have to reapply for that insurance.
You own your insurance separate from the lender so you can take it with you to the next lender you move your mortgage to.
That’s why it's so crucial when setting up your mortgage insurance to work with an insurance broker so that you can bring your insurance wherever you go.
When you get your mortgage insurance at a bank, and you repay your mortgage or you default on your mortgage, you'll lose all the insurance that you had in force.
When you get it with an independent insurance broker, you'll keep that full insurance amount as long as the premiums are paid.
Post Claim Underwriting
Saved the worst for last, what we're going to talk about now it's called post claim underwriting.
Now what does that mean?
So, when you get insurance the insurance company is supposed to underwrite your file which means that they're going to go out and find out all the information about you.
They're going to ask you health questions and maybe talk to your doctor or something along those lines.
They're going to gather information upfront so they can say “hey do we want to give insurance to this person is this worth the risk? “
Then, because you’ve done the underwriting up front, you know when you start making premium payments you have that insurance and you're covered.
When you do the bank or lender insurance, they do what's called post-claim underwriting so what they do is they'll take your premium payments now and hopefully nothing happens.
But if something happens and you need to claim on that insurance, they do post claim underwriting so if something happens, they have the right to go and look and say
“Hey, would we have covered them knowing this and this and that?”
You want to start your insurance contract knowing that you know all your information, the insurance company knows all the information and there's not going to be any surprises in the future.
If you're paying those premiums, you should expect to have that insurance.
With post claim underwriting you don't necessarily have that insurance.
What you have is the right to make those payments and if something ever happens the company reserves the right to go back and check into your history.
We are obviously very passionate about getting people the right insurance for their mortgage and steering them away from bank mortgage insurance.
We feel that there's a better product a better service when working with a licensed insurance broker. And usually, better pricing too.
We're professional financial advisors and are more than happy to help you in setting up your mortgage insurance to protect you and your family.
Contact Us
At Safe Pacific Financial, we specialize in helping Canadian business owners, incorporated professionals, and investors structure life insurance for maximum wealth protection, tax savings, and business growth.
If you would like to discuss whole life insurance or investments, we’re happy to chat and see if we can be a good fit to work with you. Fill out our contact form and we will get back to you within 24 hours on business days.
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