Beaton Insurance Services
About Mortgage Insurance
Life insurance is often referred to as Mortgage Insurance when it's purpose is perceived to protect dependent survivors against the death of a person paying off a mortgage. Most persons buying Mortgage Insurance usually hear this term for the first time when they have just entered into a mortgage loan agreement with a lending institution and the lending institution recommends that Mortgage Insurance be purchased from them. What is offered for sale by the lending institution is reducing term life insurance with a death benefit reducing to zero over the life of the outstanding mortgage. For example, if the outstanding mortgage were $200,000, payable over 20 years, the mortgage insurance should match the reducing balance of the mortgage over 20 years. You should note, however, that the cost of this coverage at your lending institution does not become less as the outstanding mortgage becomes less.
Mortgage reducing term insurance is sold by lending institutions in the form of group insurance, using life insurance companies to underwrite the risk. After answering minimal qualifying medical questions about yourself, a decision is rendered as to whether or not you qualify for coverage. There is some suggestion that more strict scrutiny of your initial application will take place at time of death claim so the onus falls upon the applicant of full disclosure of state of health at time of application. You don't receive a policy contract. You simply receive a certificate referring to a master group insurance contract, which outlines your specific benefits and cost. It also means that coverage is not guaranteed and all policyholders can be cancelled by the insurance company or the lending institution at any time if the risk to them becomes too great. If you want reducing term insurance, you would be better advised to purchase guaranteed reducing term insurance directly from an insurance company to be certain that it cannot be cancelled by anyone but you.
Mortgage insurance purchased through a lending institution by an applicant who consumes tobacco products appears to be a better deal than if that person tried to obtain independent coverage directly through an insurance company. This is because the lending institution's group insurance cost of coverage is a blended smoker/non-smoker rate and is the same cost to everyone, whether a person smokes or not. If you want this type of insurance, a non-tobacco using person will inevitably find a less expensive rate by using the services of a life insurance broker.
Mortgage insurance purchased through the lending institution is not portable. If you sell your home and buy another or if you simply re-negotiate your mortgage for a new term, you will have to re-qualify for new mortgage insurance. Maybe you won't be able to qualify because your health has changed. Most homebuyers today are not living in the same house for the rest of their lives. You might end up buying two or three or more homes in your lifetime. The likelihood is that subsequent purchases will be more expensive than the first and therefore additional insurance protection will be required. It is therefore in your best interest to purchase a level or increasing death benefit during your earning years.
When you purchase mortgage insurance coverage from a lending institution, the only choice of beneficiary is the lending institution. It may not make sense to automatically have the lending institution pay off a low interest rate mortgage with their mortgage insurance. In fact, if the home had to be sold, it may be more saleable with an intact low interest mortgage. When you purchase coverage from a life insurance company, the death benefit is paid upon the death of the life insured to a named beneficiary, usually the spouse, tax free. Having the money in hand gives the survivors the choice of whether to pay off the mortgage or invest the money, using the income to cover living expenses and continuing the mortgage payments.
All things considered, a life insurance broker is your best choice to determine and find the right kind of mortgage insurance for your particular needs. You will get the experienced advice from a professional who specializes in life insurance products.
The following table simplifies the differences between insurance coverage offered by lending institutions and personally purchased coverage. It is recommended that 10 year term, 15 year term or 20 year term be considered for mortgage insurance protection instead of reducing mortgage term insurance. By clicking on this link, you can obtain a free mortgage life insurance quote.
15310 Pacific Avenue
White Rock, British Columbia, Canada V4B 1P9
Tel: (604) 535-2404
Toll Free Canada: 1-800-667-8818
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