Mortgage Insurance at the bank….not a good deal
When you are finishing getting a mortgage or renewing it, the banker will offer you insurance on the mortgage which will pay off the balance should you die with a balance still in place, or will cover up to two years of mortgage payments should you be off work that long due to injury or illness. On the surface, this seems like it might be good coverage, however, there are some significant disadvantages.
- The coverage is usually very costly, much more expensive than getting private life or disability insurance. This is because the mortgage insurance company doesn’t do a review of your health, family history and lifestyle (more detail to come), so they don’t know who or what they are insuring. If you are in good health, private insurance would cost less. The mortgage insurance company does not review your health profile in advance, they do that after a claim. So if there is any reason for them not to have given you coverage, the claim is denied. There have been cases on the news where someone thought they were protected and in the end, they weren’t. That is a real shame, and it’s the last thing you, or your estate, want to deal with when you really need the help.
- With mortgage insurance, you are paying for a declining balance, whereas if you bought a private insurance policy, the amount is generally fixed or can even increase. So private insurance costs less and doesn’t decrease over time, which obviously seems like better value. If you switch your bank when you renew your mortgage, you have to start all over with mortgage insurance and as you get older the cost gets higher. With private insurance you can lock into a longer term i.e. 10 or 20 years, where the costs are fixed and don’t change even if your health did. And it doesn’t matter where if you switch your mortgage or not.
- With mortgage insurance, should you die, the mortgage will be paid off, which is what you want. However, this may be to your estate’s disadvantage. It might make more sense to use the money pay off other debts first, or use part of the insurance proceeds to pay for funeral costs, or to help your children. With private insurance you have a beneficiary or a designated person that gets the money and can then control when and how they pay off the mortgage.
- Finally, the banker is typically not licensed to sell insurance which doesn’t mean they are bad at it, and in fact can be very good at selling insurance. But they will likely not know that much about options and alternatives that may be better for your situation.
So the next time the bank offers you mortgage insurance, take a look around and see if there are better options. There usually are.
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This article was prepared solely by Laura Chanin who is a registered representative of HollisWealthTM (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this article are those of Laura Chanin alone and not those of HollisWealth.TM Trademark of The Bank of Nova Scotia, used under license.