Reasons to avoid mortgage life insurance
Please see below why you should consider owning an independent life insurance policy (or term life insurance policy) versus mortgage insurance (lender’s insurance) sold by the bank:
1. Post-insurance – Bank insurance is concluded subsequently. Companies investigate eligibility AFTER a request is made; i.e. you could be paying premiums for years, and in the event of a tragedy, your loved ones may discover that you never qualified for the insurance.
2. Costs – Often, mortgage life insurance with fewer features and flexibility actually costs MORE than an independent insurance policy.
3. Portability – If you buy the cover from your lender, it may disappear if you refinance, but in the case of a new lender, this will require a new policy based on your current age. Just as you want to avoid depending on your employer’s life insurance coverage in case you change jobs, you also want to make sure that your insurance doesn’t disappear just because you found a better mortgage.
4. Designated Beneficiary – Proceeds, if something happens, will bypass your loved ones. Mortgage insurance plans purchased through the bank automatically pay off your loan, regardless of the situation your family faces upon your death. An individual life insurance policy allows you to name your spouse or children as beneficiaries, giving them the flexibility to pay off the mortgage when they see the time is right.
5. Diminishing benefit – As mentioned above, the bank’s policy for lenders is a diminishing benefit, i.e. the benefits can disappear before your eyes. Mortgage insurance benefits gradually decrease in an attempt to compensate for your declining debt balance (diminishing benefit). These plans are like a runaway train, you might move to a bigger house with a bigger mortgage, but the death benefit keeps going down. Purchasing an individual life insurance policy puts you in the driver’s seat, allowing you to reduce benefits as you see fit or maintain one benefit level for life.
6. Convertibility – An individually owned term insurance policy will in most cases allow the policy to be converted without medical to a permanent (lifetime) decision. A lender insurance policy held through the bank does not provide this benefit, which is especially important if a person becomes ill and can no longer qualify for coverage.
7. Preferential underwriting – an independent pre-signed policy allows the insurer to determine if you qualify for “preferred” rates, which will reduce premiums even further
8. Consolidation of Benefits – by combining your mortgage insurance with other insurance needs such as income replacement, child care, education, etc., you will benefit from cost savings on multiple policies and tiered discounts (usually insurance companies discount in 250K groups insurances), along with the simplicity of understanding how much coverage you have in one place. In a bank, you can only insure your mortgage.
9. Discussed with a licensed insurance professional – Most bankers selling mortgage insurance to lenders are unqualified and unlicensed in life insurance. Licensed professionals shop the market
10. Shop the market – buying an independent life insurance policy from a licensed broker allows you to shop the market to find the best possible deal from a wide range of insurers. Banks often only work with 1 insurance company to provide a unique solution. Additionally, a licensed professional has a responsibility to sell based on a needs-based approach and can accurately assess your needs.
Finally, while looking at life insurance, be sure to consider disability and critical illness insurance in case you become unable to pay your mortgage due to serious illness or injury.
Please contact your local independent life insurance expert to evaluate your options.
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