You’ve just completed one of the largest transactions of your life! You’ve bought a new home. Your bank or mortgage lender is going over your mortgage documents with you and they ask you if you would like to protect your new home with Mortgage Life Insurance. Why wouldn’t you? It’s a simple tick in the accept box or in the decline box. Why would you decline the opportunity to protect your beautiful new home?
Unfortunately, most people are not given the proper information about the mortgage life insurance that’s being offered to them. Bankers and lenders usually make it seem that getting the insurance that they offer is mandatory. Well, we have news for you, it’s not mandatory!
Don’t make the costly mistake of rushing the insurance decision. You’ve spent a lot of time looking for the right home and finding the best mortgage rate. We want to make sure that your mortgage is paid should you pass away, by choosing the right product.
The CBC Marketplace filmed an episode on Mortgage Insurance vs Life Insurance, called “In Denial”, which aired 11 years ago. It explains exactly why mortgage life insurance is not the right product to protect you and your family. We have been sharing this important video with our clients since it aired, so please take a few minutes to watch it, as it really is eye-opening!
As you saw in the video, term life insurance is a better product, however, your bank or mortgage lender do not usually talk about this option.
Did you know that buying Life Insurance is one of the most unselfish things you can do. We’d like to outline these two types of life insurance products and describe their main differences:
- MORTGAGE LIFE INSURANCE is a type of life insurance offered by your bank/mortgage lender, which only covers your mortgage debt in the event of your passing, IF YOU QUALIFY!
- TERM LIFE INSURANCE is sold by a licensed life insurance professional that works with life insurance companies. It covers you for a set period of time (term), such as 10, 15, 20, 30 or 35 years and is designed to protect your family in the event of your passing, They can use this life insurance to not only pay off your mortgage, but they can also pay off other debts, final expenses, fund your children’s education and since this replaces your income, they will also have money for their future.
These are the main differences
UNDERWRITING (QUALIFYING)
Underwriting for mortgage insurance is only done when and if there is a claim. That’s referred to in the industry as Post Claim Underwriting. What this means is that the person(s) who is buying & paying for the mortgage life insurance may not actually be insured until after they have passed away and a claim has been submitted. Did you know that when you complete the questionnaire, you are only qualified to pay the premiums but you may not actually be insured. Yes, it’s possible! This gives you a false sense of security.
Term Life insurance by contrast is underwritten when you purchase the policy. That’s why you will answer medical questions and possibly be asked for a blood or urine test to determine that you will actually be insured. When a term life insurance policy is issued, you know that if you were to pass away, the insurance company will pay the death benefit (the amount paid to the beneficiary of the life insurance policy). Therefore, your family will be financially protected, if they have the right type and amount of Life Insurance.
Not having complete certainty about whether or not mortgage insurance will payout can really hang a cloud over your financial future. This is the key point of exactly what the CBC Marketplace’s video, “In Denial” is all about.
BENEFICIARY
With mortgage life insurance if you were to pass away, did you know the mortgage death benefit is paid directly to your bank or mortgage lender as they are the beneficiary, not your family? Don’t forget, that’s only if you qualify! There is no certainty that your mortgage will be paid.
Term Life Insurance is owned by you and you have total control over who your beneficiary will be and they will receive the death benefit. Your beneficiary has the flexibility to choose where the money goes, for example, pay off debts, reduce the mortgage and secure their future.
COST & COVERAGE
With mortgage life insurance, every time you renew your mortgage, you have to renew your mortgage insurance. The problem is, you are now older, you are more of a risk and you could have health issues, so you will pay a higher premium. Additionally, as the years go by and you pay down your mortgage, your outstanding mortgage balance decreases, however you continue to pay the increased premiums.
With Term Life Insurance, after you decide how much coverage you need to protect your family and you signed up for a 20 or 30 year term life insurance policy, you don’t have to do anything beyond continuing to pay for your monthly premiums. Your premiums and the death benefit remain the same for the length of the term. By the way, Life Insurance costs a lot less when you are young and healthy.
PORTABILITY
Mortgage Life Insurance is not portable. If you change mortgage lenders, you have to apply for new mortgage insurance when you are applying for a new mortgage.
Term Life Insurance is always portable. Whether you change mortgage lenders or not, your life insurance policy always stays with you. Life insurance protects everything that you want it to, whereas mortgage life insurance only protects your home but not anything beyond that. Therefore, you can switch lenders without worrying about your health diminishing or having to requalify.
These are just 4 of the major differences between Mortgage Life Insurance and Term Life Insurance. Mortgage life insurance is convenient because it is easy to apply for, when you are getting a mortgage, however most lenders are not licensed life insurance professionals and cannot provide you with all the facts, therefore, you cannot make an informed decision.
Term Life Insurance is a much better option for most people as it provides better coverage, more flexibility, is less expensive and provides peace of mind to protect your loved ones, if God forbid something should happen to you.
Don’t forget, Life Insurance is the most unselfish purchase you can make because it’s not for you, it’s to protect those you love. It’s an extremely important financial tool as it is the core foundation of your Financial House.
If you are one of the many people that are paying for Mortgage Life Insurance without realizing the difference, let us help you.
Please call one of the Financial Architects at the Blackmore Levy Group at 1.888.520.6520 or connect with us via email for a FREE Audit of your Financial House. This is a private and non-judgemental consultation.
