Insuring the Big One - Your Mortgage

Written by on 2014-09-03 11:22 AM in , , . It has 0 Comments.

 

By Tom Kaufman

Being able to purchase a home is a goal to which many aspire.  When it finally happens for you, it will undoubtedly be a time filled with excitement (and a little nervousness).  It will also likely be the single largest financial commitment you will have ever made!  Budgets will take on new significance as will your ability to continuously earn income.

You can insure your mortgage so that if you were to pass away prematurely, the mortgage would be paid off right away.  This would protect your family from the financial impact of no longer having your income to help make the mortgage payments.

Related Read: 6 Reasons Why Life Insurance is Better Than Mortgage Insurance

As with many things, while the idea seems simple enough, there is more than one way to achieve the objective and some are far better than others! Banks are eager to offer life insurance coverage on your mortgage.  They make the process easy.  They ask very few questions and often simply tack the monthly premium cost onto your mortgage payments.  Your alternative is to speak with a financial advisor who can survey the various insurance companies in Canada and have them give you a quote for an equivalent amount of term life insurance.  The table below highlights some of the differences.

Insuring Your Mortgage

  Bank Provided
Financial Advisor Arranged
Amount of Insurance
Decreases as mortgage reduces
Stays constant
Who is Paid at Death
The Bank
 Your designated beneficiary
Payout Amount
Only the outstanding mortgage
 Full amount of coverage
Monthly Premiums
Costs stays the same even though the coverage amount declines
 Cost stays the same during the entire insurance term.
Cost of Insurance
Is more expensive.  Gets more expensive as the mortgage is paid down.
Typically term life insurance is less than mortgage insurance.
Portability  The Bank owns the contract.  If you move to a new house or mortgage supplier, new insurance will be charged at your older age, which will make it more expensive.
You own the contract.  As long as you pay the premiums you are entitled to the entire amount.

If you already have mortgage insurance through your bank, it is not too late to make a switch.  If you would like to learn more about the differences, visit Tom Kaufman's page here.

Click here to go back to the Fall 2014 ProvErb Newsletter.

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