Don’t buy Mortgage Insurance from your bank…why?

January 10, 2014 at 4:33 pm Leave a comment

Not all life insurance is created equal. With a market awash with various products, finding life insurance that truly protects you and is worth your investment can be difficult. For those looking to buy term life insurance, rest assured that are some products you don’t need to think about. Here are two life products you should ignore, and why buying them is definitely a bad investment.

Mortgage Life Insurance Doesn’t Protect You !

Mortgage life insurance is a form of term life insurance, and is one of the most widely issued forms of term life in Canada.

Fotolia_34068889_S-300x200Mortgage insurance provides protection against your home should you die while a mortgage is in force, and returns the remaining value or an agreed value as a death benefit to your lending company or bank. This type of life insurance is typically offered by your mortgage lender.

The flaws in mortgage insurance are apparent right away. Unlike other forms of term life insurance, mortgage insurance doesn’t pay you or your family anything at all. Your death benefit is paid in full to your lending company.  In addition, your coverage amount will decrease as your mortgage is paid down, and you’ll get less and less value out of your insurance as time goes on.

Consequently, mortgage insurance is a term life product that offers less, doesn’t provide for your loved ones, and is tied to a debt you’re already paying down.

It begs the question: who really benefits from mortgage insurance? Controversies arise from the practice of so-called “post-claims underwriting”. Under this practice, insured may be accepted with no or little medical underwriting at the time of application. On death, the policy is then underwritten in full.

What this has resulted in is a trend of mortgage insurance owners being rejected for claims they never should have qualified for, or being rated unfairly under a process they originally weren’t aware of. This could be disastrous for a family depending on the deceased’s income, and has more than once led to foreclosure on homes in Canada.

Protecting your home, especially with a large mortgage, is definitely a worthy reason to get insured. That being said, there is nothing that mortgage insurance from your lender offers that gives it an edge over a term life insurance policy. Rather than seek insurance from your lender, get life insurance that will protect you, for your needs, payable to those you care about. Independent brokers can provide better life insurance options that can protect your home, and don’t decrease in value.

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