Mortgage Insurance Vs. Life Insurance
Mortgage Insurance VS Life Insurance
Consider your options…
When buying a home or renewing a mortgage, many people think they are obligated to sign up for their banks mortgage life insurance. Don’t rush into buying your bank’s insurance policy until you’ve looked at all the possibilities. You could end up saving money and get added life insurance coverage at the same time by considering a life insurance policy instead.
What is mortgage insurance?
Mortgage life insurance or creditor insurance is offered by most banks and lending institutions. It is a life insurance policy that pays the balance of your mortgage to the lending institution if a person on the mortgage passes away.
How does life insurance cover your mortgage?
Life insurance covers you the same way mortgage insurance covers you. If a life insured passes away, you use the death benefit to pay down the mortgage. There are several benefits to life insurance for your mortgage, why don’t we compare……
|
Mortgage insurance |
Life insurance |
| Your insurance covers only your mortgage balance, and is paid to your lender. | You can choose the amount covered and use the money to pay off the mortgage as well as any other expenses you may choose. |
| Even though your mortgage debt reduces over time, your premiums remain level. | Your coverage amount does not decrease over time unless you choose to change it. |
| The mortgage lender is automatically the beneficiary. | You name the beneficiary. |
| If you take your mortgage to another company, you may lose your existing mortgage insurance and may be required to re-qualify for new mortgage insurance. | If you take your mortgage to another company you keep your existing insurance, so you don’t have to re-qualify. |
| You lose all your coverage when your mortgage is repaid, assumed or in default. | Your coverage remains in place, even if your mortgage is repaid, assumed or in default. |
| You have no flexibility to change your coverage as your needs change. | If you decide you need coverage only until your mortgage is repaid but later realize you require coverage for other needs, you can convert your insurance to a permanent plan. |
Extra coverage with life insurance
Life insurance policies give you added coverage and flexibility over a mortgage life insurance policy;
- One of the major disadvantages of insurance purchased through the bank is the ownership of the policy. The bank owns “your” policy and has total control over it. The bank also happens to be the beneficiary of your life insurance policy. That means you have no say in who gets the death benefit or what the death benefit is used for. When you die the bank is going to use the proceeds to pay off your mortgage. However with life insurance your family receives the payout from your life policy directly. It may be more advantageous for your surviving spouse or children to use the proceeds to invest and simply continue to pay the monthly mortgage payments. (This would be most appropriate if the current mortgage interest rate is much lower than current investment rates of return. They could simply invest the proceeds and use the investment income to the mortgage payments on a monthly basis.)
- Mortgage insurance policies only cover you for the amount of your mortgage you owe to the bank. As you pay down your mortgage, your coverage amount decreases with it. This is called a reducing balance. With a life insurance policy, you have a constant level of coverage for the whole term and are getting better value for your monthly payments.
- With mortgage life insurance, you have to reapply any time you switch lending institutions. But with life insurance, unless you want to increase your coverage or terminate your plan, your policy is stays in force with no medical questions asked in the future years (when some are unable to be covered due to health issues).
Shop, compare and save
Depending on circumstances such as age and health, the premiums on mortgage life insurance can be much higher than what you would pay for a life insurance policy. Compare the cost of a life insurance policy to a mortgage insurance policy. Chances are you’ll find a life insurance policy will have lower yearly premiums and offer more coverage and flexibility than a mortgage insurance policy.
| Mortgage Amount$250,000 | Life Insurance* | Mortgage Insurance* |
| Male, Age 35, Non-smoker | $308 | $390 |
| Male, Age 40, Non-smoker | $413 | $600 |
| Female, Age 35, Non-smoker | $248 | $390 |
| Female, Age 40, Non-smoker | $313 | $600 |
*All amounts shown are based on a fixed annual premium rate. Does not include
Provincial Sales Tax – Ontario (8%) and Quebec (9%). * The Lenders’ group life
mortgage insurance premium shown is based on the average rate quoted in a survey of
Scotiabank, Bank of Montreal, TD Canada Trust, Royal Bank of Canada, and CIBC conducted
December 30th, 2008 by Empire Life.
While getting mortgage insurance through your lender is convenient, a life insurance policy might be the way to go if you’re looking to save money. I believe it’s an easy choice, so whether you’re looking to save premium dollars or cover more than just your mortgage, a life insurance policy may be the right choice for you. Dare to compare? I can get you an instant quote today.
Adam Myers
Independent Planning Group
202-223 Colonnade Road South
Ottawa Ontario, K2E 7K3
Phone: (613) 224-5511 x 108
Email: adam@pfip.ca
