Your home is likely the biggest purchase that you will ever make. So how can you protect it in case you are seriously injured, become ill, or even if you die? Homeowners have a few options to choose from:

  • mortgage insurance (usually offered by the lender)
  • mortgage life insurance (purchased from an independent agent)

Mortgage Insurance

In theory, a Bank offered mortgage insurance policy works in a very simple way. You buy the policy when you get your mortgage, and if you or your spouse dies, the balance of the mortgage is paid to the lender.

However, this type of Mortgage Insurance is not a good deal for you and is more beneficial to the banks.

Want to Know Why?

  • You don’t own the Insurance, the bank controls the policy and is the beneficiary. Period.
  • Only the debt is insured this means that as you pay down the debt, the payout also decreases, while your premium stays the same.
  • The policy is underwritten at death. This means that if they find an undisclosed health issue at the persons death, the policy can be cancelled before a payout occurs.
  • When Mortgage is paid off, the coverage disappears.
  • If you change banks, you will need a new policy. Because you are older, it will certainly cost more.

But don’t take our word for it, check out this marketplace video to see how Mortgage Insurance really works.

CBC’s Marketplace highlights some of the hidden dangers of mortgage insurance. We invite you to watch their eye-opening report entitled “In Denial.”

Bank-issued mortgage insurance is intended to pay off the balance of your mortgage, and you have no control over where your payout goes. A personal life policy is paid out directly to your loved ones, and they decide exactly how to allocate the money that is paid out.

Mortgage Life Insurance is better.

There can be many pitfalls associated with bank mortgage insurance that many consumers simply aren’t aware of. What the banks don’t make clear is that if you just buy term Life Insurance, you (and not the bank) will be better off. Consider the following 2 options a home buyer has:

Option 1

You purchase a Mortgage Insurance policy from their bank when you buy your new $250,000 home. Unfortunately, a few years later your spouse passes away. You owe 100,000 on your house.

The bank immediately forces you to pay off the entire mortgage balance with the proceeds of the Bank Mortgage Insurance Policy.

You get $0. You own your house.

You earn enough to pay the mortgage payments, but your home is in need of major repairs, and your kids are starting college soon.

You are forced to remortgage your house to get the extra cash that you need. That is assuming that the bank will even lend you the money as a single earner.

Notice that the word forced appears 2 times in this scenario?

Option 2

You purchased a Term Life Insurance policy when you bought your new home $250,000. Unfortunately, a couple of years later your spouse passes away. You owe 100,000 on your house.

The insurance company pays you $250,000 in a lump sum within a few weeks your spouses death.

You get $250,000. You owe $100,000 on your house.

You earn enough to pay the mortgage payments, but your home is in need of major repairs, and your kids are starting college soon.

Since you can make the mortgage payments, you choose to save $100,000 of the payout, and spend the $50,000 required to repair your house.

Notice that the word forced doesn’t appear in this scenario?

 

Which option sounds better to you?

In both situations, the Insurance was a help for sure.

However, in the scenario where you bought the term it is clear to see that you have flexibility with the Term Mortgage Insurance option.

There are many other ways that Insurance can be set up to help you with your mortgage if you suffer disability, illness, or a death.

That is why you should contact us. We are licensed insurance agents, and we will help look out for you…not the bank.

When you contact us we can guide you through all of your options, and then we’ll give you a free, no obligation quote.

Contact us using the contact form to the right, or toll free at 1-877-967-4323.