In Canada, when you took out a mortgage, you may remember the lender asking you if you wanted a mortgage payment protection insurance. Most probably, you glazed over it as expensive and unnecessary. However, insuring your mortgage is extremely important as it can mean the difference between keeping a roof over your head or having your home repossessed. However, insuring your mortgage is best not done with a mortgage insurance, but rather with a life insurance – and here is why.
Before delving into why a life insurance policy is an invaluable safety net for you and your family, let us ask: What is mortgage insurance?
A mortgage insurance is a product which will cover your mortgage repayments, in case you are unable to meet your mortgage repayments due to premature death. Many people may think that mortgage payment protection insurance is a waste of money, as they think it will never happen to them – which is not true.
Typically, in Calgary, as elsewhere in Canada, lenders require a mortgage loan insurance for a borrower with less than 20% down payment. This can come through an insurance from Canada Mortgage and Housing Corporation (CMHC), which protects the lender against borrower default.
Whether from CMHC or any financial lending institution, a mortgage insurance has its caveats. Herein below are the three main problems with mortgage insurance policies purchased from the lender in Canada:
Firstly, they protect the lender and not the family. The benefit is paid for the bank, or other financial institution lender and not the borrower nor their family. Therefore, they are products designed with the lender in mind, and not the beneficiary.
Secondly, it has a decreasing benefit with a level premium. The amount covered is the mortgage net outstanding balance, which is decreasing with every payment. Nevertheless, as the benefit is decreasing, the monthly premiums remain the same for the lifetime of the mortgage. This is the main reason why typical mortgage insurance policies are too expensive.
Thirdly, and most importantly, is that it undergoes post claim underwriting. This means that the mortgage insurance policy itself is never underwritten until a claim is submitted. Your lender asks an oversimplified health questions, you answer, and then you get the coverage – so what’s the catch? It is cheaper for the bank or financial institution to streamline the process. However, this is an expensive proposition for the few homeowners who may suffer as a result.
Hence, you may realize that you are not covered until your beneficiaries have submitted a claim.
How do you know it is under post claim underwriting? The secret is in the claim form itself: it requires consent to access the covered person’s medical records and other information access. It typically takes a few weeks to process the claim in order to do the necessary verification. In addition, if there is even a single inaccuracy, the mortgage insurance would be rendered null and void without having to pay the coverage. To add insult to injury, the premiums paid over the years are never returned even if the contract is nullified.
It is important to note that you do you have to take out a policy from you mortgage lender. This means you can get a policy that offers you comprehensive protection without a high price tag.
A more smart choice for a mortgage coverage in Canada is a life insurance policy. This directly covers the family, and premiums directly correspond to the coverage, which makes it less expensive. Moreover, a fully underwritten life insurance policy provides you the peace of mind that your family is actually covered.
Request from us a free quote, and you might be surprised how less expensive life insurance in Calgary can be which, more essentially, provide you an adequate coverage.