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| CONTACTMORTGAGE INSURANCE
MORTGAGE INSURANCE When you arrange a
mortgage with your financial institution, the law requires them to ask you
if you want to insure your mortgage. This will guarantee that your mortgage
will be paid off should you die.
There are 2 ways to insure your mortgage:
· with either individual or group mortgage insurance through your mortgage
lender
· with your own individual life insurance
What’s the difference? Isn’t one kind of insurance as good as the other? Why
shouldn’t you sign up for mortgage insurance with your financial institution
at the same time that your signing the mortgage documents?
See for yourself.
Protect more than just your mortgage
Mortgage insurance vs. term insurance
When Roberto bought his first house, he was 32, single, and with no
dependants. When he got the mortgage from his bank, they offered him
mortgage insurance to cover his mortgage balance in the event of his death.
At first, Roberto declined. After all, he didn’t have any dependants that
would still be living in the house if anything happened to him.
But neither did he want to burden his family with having to sell the house
to pay off the mortgage. So, Roberto purchased the mortgage insurance.
Then, as happens to all of us, life happened to Roberto. Over the next few
years, Roberto got married, financed a new car, and started contributing
more to his RRSP’s.
When their two kids arrived, Roberto and Gabriela started putting money away
to save for the kids’ education. As the kids grew, Roberto needed to move
their family into a bigger house.
Falling in love with a home in a neighborhood perfect for raising kids,
Roberto and Gabriela had to refinance the original mortgage. Once again, the
bank offered them mortgage insurance to cover the new mortgage.
But this time, with Roberto’s additional debt and dependants they wondered
if mortgage insurance was really the right choice.
As part of their research, Roberto and Gabriela consulted their financial
advisor. They were a little confused when he suggested a personally owned
term insurance policy as the better solution. After all, Roberto already had
adequate life insurance, or so he thought.
Their advisor explained that even though Roberto already had insurance
coverage, they needed to protect their family from the additional debt load
they were assuming. And personally owned term insurance would not only
protect their family, but also offer some additional benefits.
Let’s examine the differences between mortgage and term insurance.
What is mortgage insurance?
Mortgage insurance is offered by most banks and lending institutions.
They’ll offer it to you when you get a mortgage or refinance your existing
one.
It’s an insurance policy that pays the balance of your mortgage to the
lending institution if you, the person listed on the mortgage, passes away.
Mortgage insurance provides a life insurance amount equal to your remaining
debt. As your mortgage decreases, so does the payout you receive.
The cost of the insurance is based on the mortgage amount and your age at
the onset of the mortgage, and the payments remain constant through the life
of the policy. Essentially, you’re paying the same monthly premiums for a
reducing amount of coverage as you pay down your mortgage.
And mortgage insurance is great for the lender because they are listed as
the beneficiary of your policy.
How does term insurance cover my mortgage?
Term life insurance provides protection for a specified period of time. A
death benefit is paid to your beneficiary if you die while the policy is
still in force.
When you purchase a term life policy, you are covered for the full amount of
your mortgage, not just the outstanding balance, for the life of the policy.
That means you have a constant level of coverage for the whole term.
It’s usually cheaper and you choose your beneficiaries. And the proceeds
from your term insurance can be used in any way your beneficiary deems
necessary – not just to repay the mortgage.
Your best option
Buying a new home is the perfect time to purchase term insurance to protect
your mortgage and your family.
Based on its flexibility, coverage, and price, term insurance is a superior
option to mortgage insurance.
Talk to your financial advisor about the benefits of term insurance, and how
it can help you keep the house you worked so hard for.
Comparing mortgage and term insurance
Take a look at the differences between protecting your mortgage with
personally owned term insurance versus most lenders’
mortgage insurance.
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Individual Term Mortgage Insurance vs Mortgage insurance from
Your Lender
by Shari
Molchan,
Molchan Financial |
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Mortgage Insurance from Banks, Trust Companies or Credit
unions |
Mortgage Insurance from Insurance Company |
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* You are
insured under a group policy issued by an insurance
company |
* You are
insured under an individual life insurance policy from
an insurance company |
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* Your
policy is subject to change of the insurance Provider
and the terms of the agreement |
* Insurance
company cannot change the policy provisions the
guaranteed policy premiums |
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* Your
mortgage lender owns the certificate of insurance |
* You are
the owner of your mortgage insurance policy |
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* Your
mortgage lender is the beneficiary |
* You name
the beneficiary of your choice |
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* The amount
of insurance protection reduces as you make your
mortgage payments |
* The
insurance protection never decreases unless you request
a reduction |
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* The cost
of insurance does not decrease even though the amount of
protection does |
* If you
reduce your coverage, your payments will be reduced as
well |
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* The
insurance protection is not transferable and is limited
to the mortgage you have for a certain property with a
certain lender |
* This
protection stays in place when you change homes and
mortgage lenders |
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* The
insurance protection stops when the property is sold |
* The
insurance protection stays in place even if the property
is sold |
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* No changes
are permitted under the plan |
* You can
make changes to your policy, including change of
beneficiary, amount of coverage and conversion to a
permanent insurance policy |
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* The
insurance is not guaranteed renewable for a new mortgage
and, if you change financial institutions, you must
provide new evidence of insurability |
* Insurance
protection is guaranteed renewable to age 85 and you can
keep it this long if you wish |
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* You have a
bank employee to look after you |
* You use
your own insurance and financial advisor to arrange and
service the policy |
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| I can
custom-design your insurance coverage to fit not only your needs
but also your budget. There are a diverse range of term products
that are issued on a preferred underwriting basis which
recognizes that everyone’s lifestyle and health is unique.
People want to pay an insurance premium that reflects their
individual risk, not be lumped into a group. And, as your
family, business or individual needs change, we will have the
flexibility in the product to change with you. |
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