Mortgage insurance is a great concept – but it should not be purchased from your lending institution.
After approval for a mortgage, lending institutions will often offer the homeowner’s mortgage insurance, which is life insurance on a homeowner that pays off the balance of the mortgage owing if the insured homeowner were to die. This is not to be confused with the CMHC insurance (also known as mortgage default insurance), which arises if you want to buy a home with a down payment of less than 20%.
Conceptually, having life insurance in place to pay off substantial debt in the event of the homeowner’s death is highly encouraged. This alleviates immense financial stress and hardship during the grieving process, knowing mortgage payments are no longer required and the home is owned outright. With that being said, homeowners are better off pursuing this insurance coverage privately (with an insurance specialist), not their lending institution, for the following reasons:
- Affordability – the insurance premiums tend to be less if the insurance is purchased privately.
- Death Benefit – the policy death benefit will decrease each month as the mortgage balance gets reduced, however the insurance premiums will remain the same. Privately-held life insurance gives the homeowners the option to keep the death benefit level.
- Flexibility – goals and objectives may change over time and the homeowners may choose to allocate the insurance proceeds elsewhere.
- Ownership – the lending institution owns the insurance, not the homeowners. With that comes a loss of control over managing the policy and the beneficiaries. By pursuing insurance coverage privately, the homeowners remain in control.
- Portability – with privately-owned insurance, regardless of whether the homeowners switch lending institutions over the span of the mortgage, the insurance coverage remains in force. Insurability can change in an instant – having guaranteed insurance coverage regardless of what happens with your mortgage is instrumental.
- Security – traditionally, insurance through the lending institution will underwrite at the time of claim, opening the door for the coverage to be rendered invalid if there were pre-existing conditions or other issues not specified. When working with a licensed insurance professional, insurance underwriting will take place at time of application, potentially removing uncertainty from the equation.
We specialize in providing this type of insurance for homeowners, and will provide a quote free of charge. Contact us to get started.