Susan and Cory bought their first home in Vaughan in 2012; they were excited and a bit overwhelmed. There were so many decisions to make, so when their bank offered them mortgage insurance, they immediately accepted it. What they didn’t know was that it protected the bank more than it protected them. When Cory got sick with cancer a year later, they found out that they were in fact not covered – the bank discovered that Cory forgot to disclose an illness from ten years ago and their claim was denied. (Read what Toronto Star’s Ellen Roseman wrote about mortgage insurance here).
Why shouldn’t you buy mortgage insurance from your bank?
Although mortgage insurance is easy and convenient to obtain from your bank, it is to your advantage to apply for individually owned term life insurance.
Here are 5 reasons why not to use your bank for mortgage insurance, and how term insurance protects your family in ways your bank cannot:
#1 Bank mortgage insurance protects the bank, not your family.
The money is paid out to your bank, not your family. Term life insurance gets paid directly to your family to use as they need.
#2 Bank mortgage insurance coverage declines as your mortgage balance is paid down.
You continue to pay the same premiums even though your actual coverage is reduced each year. Term life coverage remains the same throughout.
#3 Bank insurance rates are higher than term insurance rates.
Since they don’t do a full medical assessment to determine your health and risk of dying, you pay significantly more than if you would purchase an individual policy.
#4 Banks only do medical underwriting at claim time, not at the time of application.
Should the bank discover an issue, as in Cory’s case, they can deny your claim. Getting medically underwritten for individual term insurance avoids that problem.
#5 Bank mortgage insurance is non-transferable when you move.
When you move houses or lenders, you must take new mortgage insurance each time; with term insurance, you can keep your coverage no matter how many times you move.
Have questions about your mortgage or other insurance? Want to find out how you can save money on your insurance costs? Contact me for a complimentary 30-minute consultation.
Aviva Abraham is a group benefits and insurance advisor at Creative Planning. She has been providing healthcare solutions for self-employed and business owners since 2010.