It’s something that millions of Canadians have done. You re-apply for your home mortgage with your bank. You’ve shopped a little and found they’re giving you a pretty good deal with low interest rates. The bank employee advises they have a product that would pay off your mortgage if something happens to you. It sounds very convenient, and after a few simple questions the payments for your new mortgage insurance policy get rolled into your mortgage payments. It’s that easy. But is something that simple, which is meant to protect something as complex as your life, the best option?
Life insurance brokers have access to many markets and can offer many options that banks can’t. So just what are the differences between Mortgage Insurance and Life Insurance? Let’s take a closer look at the top six differences between mortgage insurance and life insurance:
1. Up Front Underwriting vs Post-Claim Underwriting
This is perhaps the most important difference between life insurance policies and mortgage insurance policies. A life insurance expert at Erb and Erb Insurance Brokers Ltd. will take the time to go through a life insurance application to ensure it is completed fully and accurately. All underwriting is done before the policy is put into force. On the other hand, because mortgage insurance through a bank is usually tacked onto your mortgage payments and there are only a few questions, underwriting is done after someone has died and a claim is made. This means if a person had certain illnesses the claim could be declined. Not so with a life insurance policy, because everything is filled out correctly and upfront. Here is a CBC Marketplace episode which discusses post-claim underwriting issues surrounding Mortgage Insurance.
With a term or whole life insurance policy you decide who the beneficiaries are going to be. The beneficiaries can be changed or locked in depending on your preference. With a Mortgage insurance policy through a bank, it is the bank that is the beneficiary of your policy. Simply put, life insurance policies protect families while mortgage insurance policies protect large corporations, the banks.
3. Renewal Times
Mortgage insurance policies renew when you renew your mortgage. And, if you switch your mortgage provider you have to go through the application again with the new provider. With a life insurance policy you can have terms of 10, 20 or 30 years or you can have a whole life policy that will never have to be renewed or re-applied for as long as you continue your payments.
4. The Payout
With a life insurance policy your beneficiary gets the full amount for which you were insured. The amount doesn’t change or diminish over the years as long as you keep up with payments. With a Mortgage insurance policy the bank is awarded enough funds to cover the outstanding debt on your mortgage no more, no less. So as the years go by and your mortgage debt decreases the payout also decreases. The amount of your payments does not decrease with the lessening award.
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The life insurance policy is portable, which means it doesn’t matter how many times you renew or switch your mortgagee it will still be in force.
6. Licenced vs Unlicenced
With an independent life advisor you are dealing with someone licenced and trained to sell and advise on Life Insurance and related products. They’ve undergone continuous education to stay current on the latest laws and changes to the industry. A bank employee who sells mortgages likely does not have the same training and expertise for insuring lives. They’re offering something to you as an after-thought or to fill their quota.
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With a life insurance specialist, like at Erb and Erb Insurance Brokers Ltd. you have many options. We take the time to understand what’s important to you and make recommendations that are suited best for you or your family, regardless of your situation.
Want more information on our products? These links will take you to our life products: Life Insurance, Critical Illness Insurance, Disability Insurance and Group Health or Benefit Plans that can be tailored for individuals, families and large corporations.
Did we miss something or do you have a question? Please ask in the comment section below.
Thanks for reading.