Canadian Mortgage Life Insurance
November 19, 2008 at 12:36 pmGlenn Cooke, President of Insurecan.com, discusses the differences between mortgage life insurance and term insurance.
If you’re taking the time to compare mortgage rates you’re likely going to also be shopping around for mortgage life insurance. In fact, when you get your mortgage your lending company is probably going to offer you life insurance on the mortgage as part of the process. Seems pretty simple right?
But stop for a second. There’s some serious issues you need to consider. Is mortgage life insurance through your lending institution the right product for you? What about the rates – is it your least expensive alternative? If you’ve taken the time to find the best mortgage rates, shouldn’t you also take the time to ensure you’ve got the best life insurance rates?
Let’s start off with how mortgage life insurance actually works. Mortgage life insurance is known as creditor insurance since it’s offered by creditors. Remember that the creditor who’s offering you the mortgage life insurance rates isn’t shopping around to find out if it’s the best rate available. They simply offer you whatever insurance product their institution offers, without regard to price.
Mortgage life insurance is also known as decreasing term insurance. Of course it’s not the premiums that are decreasing, it’s the coverage. While your premiums stay the same for the duration of your mortgage, the coverage you’re receiving is actually declining with your mortgage balance. Lower mortgage over time means you’re receiving less coverage.
Another consideration with traditional mortgage life insurance is the length of the coverage. Your mortgage life insurance will last as long as the ‘term’ of your mortgage. It does not last as long as the amortization period of your mortgage. What that means is that if you have locked in your mortgage rates, your life insurance will last for that same 5 years. When you have to renegotiate your mortage, you have to renegotiate your mortgage life insurance. If you’ve become uninsurable in the intervening time period you can easily find yourself declined for mortgage life insurance at your next mortgage renewal.
The answer to all of these issues is to instead deal with a life insurance broker who will help you purchase an individual term life insurance policy.
Life insurance brokers are not tied to an individual company and can shop around to find the least expensive rates for your situation.
Individual term life insurance products offered directly through life insurance brokers are not tied directly to your mortgage. That means that while your premiums will remain level for a period of time, so will your coverage – it doesn’t decline with your mortgage balance.
With individual term life insurance you can name your own beneficiary – and it doesn’t normally need to be the bank. You can name your spouse, or your dependents for example.
The most common types of term life insurance for mortgage protection are 10 year term, 20 year term, and 30 year term. These products have premiums that are level for that time period (10,20 or 30 years). So if you have a 30 year mortgage, 30 year term life insurance will ensure that you have the insurance coverage for the period of your mortage. No medical exams in the middle, no requalifying, no increase in premiums.
Plus, most term life insurance policies in Canada have what’s known as a conversion privilege. This allows you to trade in your term life insurance policy for a permanent life insurance policy – without a medical exam. This conversion priviledge means you are assured of being able to buy life insurance at healthy rates in the future even if you become uninsurable. These are features simply not found with mortgage life insurance.
But how are the rates of individual life insurance compared to mortgage life insurance. The only way to find out is to contact a life insurance broker and have them shop the market for you – but you should expect very competitively priced products. Individual term life insurance is heavily shopped by consumers and this has created a competitive marketplace.
UPDATE: In Feburary 2008, CBC Marketplace ran aired a consumer segment on mortgage life insurance that you can view here. The video clip discusses some problems consumers are finding with mortgage life insurance not paying the death benefits as expected.
In addition to the clip, the article on their website suggests the following:
Shop around.
- Consider buying from a licensed insurance broker who will explore any medical issues upfront.
- Consider buying or topping up an individual life insurance policy to cover your mortgage.
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February 7th, 2010 at 11:52 pm
id like to know if a person had a 10yr locked in mortgage/life insurance and they decided not to renew policy,but informed company before 10yrs had expired,,,are they entitled to receive back the premiums they had paid during that 10yrs.?