The majority of the families I meet with think they have their biggest liability (their home) covered with mortgage insurance that they got from their lender. The problem I find is that typically the person selling the mortgage never took the necessary education, training and licensing to sell life insurance and are not qualified to explain a complicated and important product to people that depend on it. Plus they end up overpaying thousands of dollars over the life of their mortgage – money that could be put to better use.
It’s not lying if they don’t explain how it really works right?
Often the lack of disclosure on how mortgage insurance really works that leave you believing that if they accept the insurance and pay the premiums the policy is guaranteed to payout if they suffer a critical illness, disability or if they die. This is not true, just because you make your payments and you checked a couple of boxes on the form, does not approve you for coverage. When your family needs to make a claim the bank’s insurance company will begin the underwriting process. This means that they will now look at your medical history and then decide if you should be covered. So imagine if you passed away, or get diagnosed with cancer, your family is grieving and now they have to wait for the decision of whether or not the policy will payout. There are plenty of horror stories of claims being denied or families having a difficult time collecting as seen in this CBC Marketplace episode In Denial.
Is there a better option?
If you meet with an independent insurance broker, they will be able to assess your insurance needs, explain all your insurance options, answer any questions and save you money. With actual life insurance you have lots of options that typically cost less than the mortgage insurance you get from a bank or lender and is guaranteed to payout because you go through the underwriting process upfront. If you die, your family gets the tax-free money and choose what to use it for.
The bottom line is you could be paying less and have a guaranteed tax-free benefit for your family when they need it the most.
The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. I recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.
Photo credit: NazarethCollege / Foter / CC BY
I do not have insurance on my mortgage and that is because of my illness, everyone needs to read that fine print, if I did take it, it would of cost me an extra 96.00 a month. I do however have insurance on my home through my own broker which is combined with my auto. It’s sad to say but my mother payed for years on insurance through her mortgage, when my father passed away they would not cover because of his illness, so all them years paying into it for nothing
Oh my goodness – apparently I am one of those naïve, sign on the dotted line mortgage insurance suckers. Thanks for the invaluable info. I’ll be looking into our policies now.
Great practical advice. It isn’t something I’m thinking about right now, but when the time comes, I’m definitely going to look into other options.
You have written about a very important topic,we have to protect ourselves,ask lots of questions
Like Lynda I’m disabled and didn’t qualify for that insurance but we paid our mortgage off in 7 years luckily and now we just have house and vehicle insurance