There you are. You more than likely just completed the largest transaction of your life, the purchase of your new home, and your bank or mortgage lender asks if you’d like to protect your largest asset with mortgage insurance. Seems like a no-brainer, doesn’t it? Don’t forget to read the fine print.
The banks love to bundle mortgage insurance with the mortgage agreement and even make you sign off that you denied the coverage. The large daunting checkbox where you scrawl your initials to deny the coverage naturally causes you to be uneasy, and most people take the coverage because it seems like the right thing to do. The problem is, there is better coverage to be found, and sometimes your bank or mortgage lender don’t do a very good job informing clients of their options and the different types of life insurance for their needs.
Before we go any further, let’s make sure we understand the differences of these types of life insurance:
- Mortgage insurance is designed to pay off your mortgage balance in the event of your passing. This benefit is paid directly to your lender, your premiums remain the same throughout the life of your policy, however your coverage declines as your mortgage balance does.
- Term life insurance is designed to protect your family in the event of your passing for things such as your mortgage, income replacement, final expenses, or education fund. The benefit is paid to a beneficiary of your choosing, and your coverage and premiums remain level for the duration of the policies term – generally 10 or 20 years.
Call any financial advisor in Canada, they will all tell you the same thing, term life insurance reigns superior as a financial product compared to mortgage insurance. Term life insurance trumps mortgage insurance for these four main reasons:
- UNDERWRITING – an insurance buzzword, medical and lifestyle underwriting are done to see if you qualify for life insurance. Term life insurance is guaranteed to pay out once approved. There will be no guessing games if someone passes away with coverage. Mortgage insurance is underwritten after you make a claim. This means there is NO GUARANTEE that mortgage insurance will pay out, this is the most disturbing difference between the two products.
- PREMIUMS – mortgage insurance premiums are generally more expensive, AND the coverage is declining. Term life insurance premiums are generally cheaper, and if you are in exceptional health, you have the opportunity for preferred ratings (cheaper premiums), saving you even more money.
- BENEFIT – Mortgage insurance pays directly to your mortgage lender or bank. Term life insurance is owned by you, this means you have total control over your coverage. You choose how the benefit is paid, and your beneficiary can choose how to use the benefit. If they want to invest the money instead of paying off the mortgage, they have that flexibility.
- CONVENIENCE – mortgage insurance is bound to your mortgage, so if you move or change lenders, you must take out new coverage, at your current age and health, meaning your premiums will go up. Term insurance stays with you regardless of your living situation, and you can choose your coverage. This means you can cover all your debts, income, and other needs, under one policy.
Life insurance is an important financial tool, but it’s also important you have the right amount and type. Consider all your options and talk to a HERO to learn more.
Call us at 855-777-4376 or request a life insurance quote today!
