It is very common for many Canadians to have insurance protection on their mortgage offered by the bank or lender whom they have their mortgage with. Usually what happens is when a mortgage is setup with a bank/lender, when the client is signing the final documents they are typically offered insurance protection on their new mortgage. Different banks have different names for the insurance coverage that they are offering and sometimes make it seem like it is mandatory to have when in fact it is NOT mandatory to have. This insurance protection is called creditor insurance.

There are many reasons why you should not have this coverage on your mortgage.

1. It is NOT guaranteed to pay out

Mortgage insurance is typically not guaranteed to pay out in the event of a claim. This is because banks use what is called “Post Claim Underwriting” with their policies. This means that they have the ability to determine if they will pay out your claim or not at the time that you make a claim. As a result, there is the potential that the bank will not pay out if you make a claim. This is one of the main reasons it is important to get an individual insurance policy from an insurance company (which we offer) to cover your mortgage debt as it is guaranteed to pay out once issued.

2. You cannot choose a beneficiary

The bank is the beneficiary on the insurance protection that they offer. This means that if the bank does in fact pay out a claim, they will only pay out the remainder of the mortgage balance and you will not physically receive any funds from them. It is important to have access to cash quickly in the event of a claim and is another reason why it is important to have an individual insurance policy. With an individual insurance policy you receive the death benefit tax free typically within 2-3 weeks of making a claim and have full freedom on how to spend the money.

3. It is typically overpriced

For a healthy individual, it is almost always more affordable to have your own life insurance plan compared to the coverage at the bank. The coverage from the bank offers no additional benefits when compared to an individual insurance policy so there is essentially no reason to have it if you are insurable. We can help you price out different policy options to replace coverage at the bank if you have it.

4. The coverage decreases and premiums stay the same

With an individual insurance policy, the monthly premiums and coverage amount are both fixed for a period of time. For example, you can have a 20 year term life insurance policy with a death benefit of $750,000. This means that for 20 years your coverage amount of $750,000 and premium amounts are both fixed.

With creditor/mortgage insurance offered by the bank, the premiums are typically adjusted every time you redo your mortgage (every 5 years for most people). Even though you may have paid down your mortgage over a 5 year term, when you redo your mortgage you are now five years older and could potentially see an increase in your premiums. The coverage amount also decreased as you pay down your mortgage so you are paying the same monthly premium while your coverage is becoming less every time you make a payment towards the principle.

 

As you can tell, owning your own life insurance policy has many advantages over the coverage offered by the banks. Please feel free to contact us if you have any questions regarding mortgage insurance or applying for your own individual life insurance policy.

West Coast Life Insurance
Email – simon@westcoast-lifeinsurance.ca
Phone – 778-484-2683