Mortgage insurance is offered by most financial institutions every time you renew your mortgage. Many have no guarantee it will pay out until they do the under-writing after you die. How much of a gambler are you?
Mortgage Insurance v Life Insurance
When you apply for a mortgage, most financial institutions will ask if you want to purchase mortgage insurance. It’s easy, just a quick questionnaire. If you read it, it seems simple. A quick check mark and you’re done. Now you have peace of mind that if something happens, your family won’t lose their home. Or will they?
I have a friend who purchased mortgage insurance for many years and when his wife died under the age of 60, his insurance claim was denied because they determined there was a pre-existing condition that had not been disclosed on the insurance form when they applied.
I met another couple who had problems when they wanted to change their mortgage to another bank. He would no longer meet eligibility requirements for new mortgage insurance because he had developed a heart condition. They were now locked into that bank and held hostage to whatever rates that bank had because they couldn’t move their business without losing insurability. The reality is that couple still may not get the money when he dies and they won’t know until after the fact.
When you purchase life insurance from an insurance company, the under-writing is part of the purchase process. You still have some risk of being denied if there is any chance that you didn’t disclose health information that might affect the policy application being accepted. Make sure you know your family history. If there is any doubt, tell your agent that you don’t know. Don’t say there is no history unless you are absolutely sure. In fairness, the insurance company is betting on your life and deserve the opportunity to asses their risk.
Why go through the under-writing process when you can fill out a simple form at the bank? Because, once the insurance company delivers the policy to you and you accept, you are the only one who can cancel the policy and they have given you a guarantee they will pay. Always remember the caveat that you have to be honest and up front with them or they will have the ability to escape based on your lack of disclosure. It’s far more rare for an under-written insurance policy claim to be denied.
Another great reason for life insurance over mortgage insurance is that you have a choice on who to leave the funds to. Imagine that there is a need to cover costs that occurred before you died. That cash can be used by your partner as they wish. It’s up to them to manage their budget (provided you named them the direct beneficiary). Be very careful about having your will control your insurance money. With Mortgage insurance, the bank is the direct beneficiary, if the insurance pays. Your survivors have no option. Should the insurance be declined, your estate is still on the hook for the mortgage.
What’s that old cliche? The only sure thing in life is death and taxes.
Please understand this my opinion only and you need to have a risk management discussion with your financial advisor before making any decision. By all means, have your legal advisory team review the contracts before you sign them.
Watch below, video by CBC about mortgage insurance.
Make it a great day,
P.S. What am I thankful for today? I’m thankful there are real financial advisors out there. I’m thankful for my legal advisory team. I’m thankful for every new day.
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