Do you have mortgage insurance through your lender?
Is having mortgage insurance through your lender your best option?
How certain are you that your mortgage insurance will actually pay out?
This video is an eye-opening episode of CBC’s “Marketplace”, entitled “Marketplace: In Denial”.
It specifically warns consumers about some important “holes” in mortgage insurance.
I strongly suggest that you take the time to watch it.
For many of us, our homes are our biggest assets and our biggest liability. Most people acknowledge the importance of insuring a mortgage and the easiest (but not always the best) way to do this is while we are signing the paperwork for the mortgage.
Mortgage insurance is required by many banks as part of the mortgage process. However while they can request that you have insurance to cover the debt, they cannot require that you get insurance with them. You have the flexibility to shop for mortgage insurance to get the best product that meets your family’s needs.
The most important thing to remember about insurance through your lender is that even though you are paying the premiums, you may not necessarily be covered. Most of these policies use post-claim underwriting, meaning that the insurance company will dig into your medical history after a claim is made and the benefits are not guaranteed to be paid.
The insurance coverage through your lender reduces as you make your mortgage payments but your premium payments do not decrease. You may also need to renew the policy every time you renew your mortgage. That could be every five years. Your premiums can therefore increase as you would be older and your health condition may have changed.
Depending on your age and health, the premiums on mortgage life insurance through your lender can be much higher than through a life insurance company.
Insurance purchased through a life insurance company is underwritten before the policy is issued not after. Therefore, you know your claim will be paid out. You are the owner, making it more portable and flexible because it is attached to you rather than your debt. You can also attach a Critical Illness and/or Disability insurance policy to your coverage and the policy can be converted to permanent coverage without medical questions.
In the video clip, “Marketplace” shows that the application process for mortgage insurance is somewhat misleading, resulting in many potential claims to be denied. In addition to this major flaw in mortgage insurance, outlined in the “Marketplace: In Denial” episode, it is important to know other risk factors that may be involved with mortgage insurance:
1) You don’t own the policy (you have no control) – the master plan can be cancelled at any time, the premiums can be increased at any time, changes can be made at any time.
2) No policy cancellation notice is required (the insurance can be cancelled at any time without your consent)
3) The balance of the insurance declines with the mortgage (although you usually pay a flat premium).
4) You have no plan choices with mortgage insurance – you either take it or leave it.
5) It’s a pre-determined coverage amount – the amount of your mortgage. There is no flexibility and no extra coverage should you require it for things such as income replacement for your family, funeral and other costs at death, paying off other debts, or giving you additional funds to take some time off to grieve after losing a loved one…
6) Mortgage insurance is not portable – if you switch mortgage carriers (to obtain a better rate, for example), you can’t take the insurance with you; if you pay it out, there’s no more insurance. If your health has changed in the meantime, there is a risk of not being able to be insured for new insurance or, more likely, although you pay for the mortgage insurance, you actually would never receive the benefit of the claim in the future, due to pre-existing conditions.
7) You cannot name beneficiary designations on your mortgage insurance. The proceeds go directly to the bank. There is no flexibility of keeping your mortgage or a portion of the mortgage and instead receiving the funds or a portion of the funds to use for other purposes which may make more sense at that time (you want to pay off higher interest-bearing debt such as credit cards, etc).
8) There are no premium guarantees – rates can change at any time.
As for Individual life Insurance where there is a contract between you and the insurance company – you have full control of the contract and only you can make changes to the contract. The policy is underwritten at the time of application, not at the time of claim (the insurance company will not be digging into your medical files at claim time). For having peace of mind for your family’s financial security, especially during a stressful circumstance, it is definitely worth exploring.
Risk management is a major part of the financial planning process. If there are any holes in your plan, then the foundation for financial security may not be secure. I would be pleased to review your situation, your goals and your objectives to ensure that you do not have to ever worry about your overall finances. I would also be happy to review your current insurance and completing a needs analysis to ensure that you are adequately covered for your personal objectives and without over-paying for the coverage. My objective is to educate my clients so they know exactly what they have, where they stand and what would happen in any scenario. Financial peace of mind is what I hope to help my clients achieve.
Even if you already have insurance for your mortgage in place with your lender, it is still possible to change.
Give me a call at (705) 562-7674 for more information about mortage insurance or to receive your free quote.