When you take out a mortgage with your lender (usually a bank), they will encourage you to purchase mortgage life insurance. This coverage will pay off your mortgage in the event of your death to ensure your family can continue living in their home mortgage free. You’ll be asked to complete a short questionnaire to determine your health status. If all appears to be OK, you’ll get approved and the monthly cost will be added to your mortgage payment.
Sounds simple doesn’t it.
In a recent article in the Toronto Star, it described the unfortunate situation surrounding Vivian Elliot, who lost her husband to a massive heart attack at age 51, and was told by the bank that her mortgage life insurance wasn’t in force. “The bank said the application was answered incorrectly”! The problem is Vivian and her husband thought they filled out the form correctly but the bank’s actual formal underwriting process only takes place when there’s a claim! In other words, you think you’re covered for all the years you paid premiums, however, you may be in for a nasty surprise.
Unfortunately, this is not an isolated case.
In another quote from the Star article, a former banker said “it’s not in the bank’s interest to do due diligence up front on insurance questionnaires”.
A far superior approach involves buying individual mortgage life insurance coverage for both you and your spouse. The policy is underwritten at the time of application and approved, so there are no nasty surprises at claims time.
Some additional advantages to this approach are:
- You decide how much coverage you need – you may add an additional amount over and above the amount of your outstanding mortgage to cover such things as other outstanding debts, final expenses, education for your kids, income replacement, charitable gifts, income taxes…
- With your bank mortgage insurance coverage, the amount of the insurance keeps decreasing, along with your principal outstanding, even though your premiums stay the same. Your individual life insurance does not decrease.
- You decide who will be your beneficiaries vs. the bank deciding it will be the bank. The proceeds will go directly to your named beneficiaries without delay and they can decide where the funds would be best utilized.
- Should you transfer your mortgage to another lender, you will have to go through the whole mortgage insurance approval process again. What if your health status has changed? With your individual coverage, you can be flexible in choosing your lender and get the best mortgage deal as you own your coverage instead of the bank.
- Your premiums may be significantly lower with individual coverage vs. the bank’s due to your health and/or smoking status.
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Given all the benefits and peace of mind that individual life insurance coverage can provide, it would be well worth your while to talk to an insurance professional who can guide you every step of the way.
Hi Aileen;
I like your blog and I am glad you are doing so well. Keep up the good work!
Beat regards,
Tina
Thanks Tina!