We Canadians love the dream of owning our own home.
Actually, we here in the Niagara Region are still fortunate enough that we still can have that dream even with the increase of homes and their values over the past number of years. Of course home ownership comes with numerous responsibilities. One of the most overlooked and misunderstood details on home ownership is having the proper mortgage life insurance in place in the event of a death.
Today Canadians owe over 2 trillion dollars in household debt, according to the Bank of Canada.
Two thirds of that debt is residential mortgage debt. If you ask anyone these days, they would say that their biggest financial liability is their mortgage debt. To protect this liability, homeowners have options of purchasing mortgage life insurance. Typically, the lender of the money you are borrowing from will ask this question. So did you want to add an insurance plan to protect the mortgage in the case of death onto your loan?
When you hear that question, and before you sign up, you may want do the following:
1. Get the monthly premium, amount of coverage and policy options your lender is recommending to you
2. Call your personal insurance advisor and ask them to do a comparison of the lenders plan vs the advisors plan.
When buying life insurance for a mortgage or a loan, there is usually a vast difference between a lenders insurance policy and a personalized insurance plan through a life insurance provider.
When buying a lender policy, the lender is the beneficiary and if the insured dies, these types of plans simply pay off the debt owing. These plans are generally one size fits all when it comes to your health and lifestyle, so those that are in good health, overpay for those that are not in good health. These plans also have a reducing benefit which reflects the reducing debt, but the premiums do not reduce and the premiums stay level for the life of your mortgage. The final issue with these plans is that if you decide to change lenders or you need to take this insurance with you into the future, there is no portability option, so with an illness, if you change lenders for a better rate you may not qualify for the new lenders coverage.
When buying through your insurance advisor you will find that those in good health get much better pricing.
Those that don’t smoke get much better pricing and those at an older age get much better pricing. The other benefit is that the insurance amount you sign up for is level for the term of the contract, this really matters. Imagine on the death of the insured, if the mortgage that was initially applied for was 250,000 and years later on the death of the insured the loan value was only 150,000, the surviving beneficiary will receive the 250,000 with only a 150,000 loan. The beneficiary would retain the $100,000 difference between what was paid out and what owed. This is a massive issue if a death happens. The last key issue on these plans as well is that they are portable if you change your lender and if at the end of your mortgage term, you can convert any portion of your initial benefit to a policy for personal needs. This really matters if during the course of your mortgage, a critical health event, say cancer, you could then keep the policy or carve out a portion of your coverage to pass on to a loved one
In the end, it really does pay to know the differences of these types of plan and why it’s worth getting a second opinion.
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