Recently, CBC’s Marketplace ran a story on the pitfalls of purchasing mortgage and creditor insurance and we thought this would be a perfect opportunity to highlight the benefits of arranging your own life and health insurance plans in order to protect yourself and your loved ones.
When you are approved for a mortgage, credit card or line of credit, your lender will offer to sell you insurance to pay off these debts in case of a death or disability. This offer may seem convenient, but you should be aware of many factors before saying ‘yes’ to these coverages.
Most of us will agree that it is important not to leave your loved ones with outstanding debts in the case of a premature death or disability, but mortgage or creditor insurance plans offered by the banks and lenders are not always the best option.
When you purchase mortgage insurance you are actually joining a group insurance policy owned by the lender. Though this may seem like the easiest way to get the coverage that you want, but there are many disadvantages.
With mortgage insurance, the lender is beneficiary on the plan there are no further provision to protect your family. There is very little flexibility with the coverage. Your lender will insure you only for the amount of your debts. You cannot alter, renew or convert the plan.
Should you happen to move to another lender in the future, or sometimes even renegotiate with your current lender, the policy is not transferable. This means you will have to reapply for the insurance coverage and pay premiums based on a higher age, or you may not qualify for coverage at all should your health change.
Also, since creditor insurance is provided through a group plan, you pay the same rate for the coverage as everybody else. You are not rewarded for looking after your health or with some plans, even being a non-smoker.
Another important fact is that your premiums and benefits are not guaranteed. Your lender can change or cancel the policy at any time. Also, your premiums remain the same while your benefit will be reduced as you pay-off your mortgage.
There have also been many documented cases where mortgage insurance claims have been denied due to non-discloser by the clients, even after years of paying premiums for coverage mortgage clients thought were in place the whole time.
With so many gaps in creditor insurance polices, most Canadians will want better guarantees and greater choice. It should also be noted that most lending officers and mortgage brokers don’t even hold an insurance license. Quite frankly it makes sense to speak with an insurance professional about mortgage insurance.
Financial advisors that hold an insurance license have a process in place to help you purchase the right amount and right type of insurance.
Their recommendations will put you in control of your insurance plan. You will own the policy, you can make changes to the plan when necessary, and your loved ones are the beneficiaries—not the bank. If circumstance change, the beneficiary can choose to use the money for other needs instead of paying the mortgage off automatically.
Term life insurance is more affordable and will meet most people’s needs. But you also have the option of choosing permanent insurance like whole life or universal life plans, as well as personal disability or critical illness insurance as well.
A personally plan will have important guarantees and cannot be canceled. If you decide to shop around for better mortgage rates, your insurance plan is portable and will stay in force even if your move to another lender. Also, the insurance benefit will not decrease like mortgage insurance.
You should be aware that when you arrange a mortgage, the lender may ask you to purchase insurance, but you have the right to shop for the plan that meets your needs.
So before you say ‘yes’ to creditor insurance talk with an insurance professional to find out how you can better insure your debts.
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