Alert ! Mortgage Insurance, Good, Bad, and Ugly Must read for Homeowners

October 10, 2013 at 2:38 pm Leave a comment

 

245What is Mortgage Insurance?

If you are an existing homeowner paying down a mortgage you probably already have some type of mortgage
insurance coverage. If you are just starting out and are in the process of purchasing your first home, then you
will likely be requiring mortgage protection in the very near future.
Mortgage insurance is a life insurance policy offered by banks and other lending institutions. It is designed to
pay off the the balance of a mortgage should the mortgage holder pass away before the mortgage has been
paid out.

Without exception the beneficiary of the policy will always be the bank or lending institution. More than 90% of
all Canadian home owners purchase mortgage insurance from their lender at the time the mortgage documents
are signed. If you happen to be one of those people, then you will have paid on average 40% more for an
insurance policy that benefits only the lender instead of you and your family.
The table below shows the cost of typical mortgage insurance offered by one of Canada’s top 5 banks as
compared to our 10 Year Term insurance. The rates shown are standard rates for a non smoking male on a
$250,000 mortgage. Preferred rates will be even lower. Contact us for a free quote today.

AGE Reg. Mortgage Ins. 10 Year Term Cost Savings
35 $32.50 per/month $17.91 per/month you save 55%
40 $50.00 per/month $22.57 per/month you save 45%
45 $72.50 per/month $32.70 per/month you save 43%

What are the Benefits?
Standard Mortgage Insurance
If a person owes $250,000 on a mortgage and dies in a car accident tomorrow, the insurance company would
pay back to the lender the $250,000 that was left owing on the mortgage, or would they?
What 90% of Canadians don’t realize is that the underwriting on a typical mortgage insurance claim is done
after the fact. In other words, the insurance company will look into the medical history of the deceased to see if
there could be any reasons for denying the claim.
If the autopsy revealed that the car accident was caused by an underlying medical condition then there is the
possibility of the claim being denied. The surviving spouse who happens to be a stay at home mom and raising
3 kids would then have to find a way to continue paying the mortgage or risk losing the family home. If you
don’t think it could ever happen then have a read through the following stories:

CBC Marketplace: “In Denial”
Toronto Star: “The Feldman Story”
Term Life Insurance
The difference with Term Insurance is that the underwriting is done beforehand, therefore the insurance claim
cannot be denied later on. If the insured party passes away, then the $250,000 is paid out directly to the
beneficiary and not to the lender.

Assuming that the surviving spouse is the beneficiary, then he or she now has the choice of either paying out
the mortgage or using the funds in a manner of his or her choosing. Maybe the spouse earns a good income
and is content to continue paying down the mortgage every month.
The $250,000 could then be used to renovate the family home or to fund a new business venture. Maybe a
college fund for the kids or invested in a retirement plan for the future. The proceeds of the term policy and the
disbursement of the funds are always 100% controlled by the beneficiary.

What is the Coverage?
On a conventional mortgage insurance policy the amount of coverage is based solely on the outstanding
mortgage balance. If the original mortgage loan was for $250,000, but over years of repayments the balance is
reduced to $170,000, then the amount of coverage also decreases to $170,000. The proceeds of the policy are
payable to the lender and not to your beneficiary.
Term insurance on the other hand provides the same level of coverage for the entire length of the term and at
about 40% of the cost. If someone started out with $250,000 in coverage but over time the mortgage balance
diminished to $170,000, the amount of coverage would still remains at $250,000.

What is the Downside?
The worst case scenario for Term Insurance is that for certain health reasons the applicant might not qualify.
Well isn’t that actually better to know beforehand than to have spent thousands of dollars in unnecessary
insurance premiums for coverage that would ultimately get denied? Learn to protect your family, your home,
your business, and Not your lender ! Contact ottawabroker.com s today and let us take care of all your
mortgage insurance needs.

free quote

 

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