Know How to Use Life Insurance on Mortgage—Ask an Insurance Broker

“Canada’s national housing agency has increased the cost of insuring mortgages for homebuyers who make down payments of less than 20 per cent.

Starting in May, the housing agency will charge an average of about 15 per cent more to insure mortgages, CMHC said in a release Friday.

Prior to the announcement, the premiums ranged between 0.5 per cent and 2.75 per cent. Under the new rules, they will range from 0.6 per cent to 3.15 per cent.

The changes are unlikely to have a major effect on the housing market, but in real-dollar terms, the move makes it incrementally more expensive to buy a home. A heavily leveraged buyer — someone with only five per cent down, and therefore borrowing 95 per cent of the home’s value — would be most affected by the hike.”

Insurance Premiums

Your home may be the biggest investment you’ll ever make. When you arrange a mortgage with a financial institution, they’ll ask you if you want to insure your mortgage through them. However, mortgage insurance supplied by the same institution providing your mortgage may not be the best alternative for you, especially if you are cost conscious.

Mortgage insurance

The convenience that Toronto mortgage insurance offered by banks/lending institutions comes with a cost. For one thing, it’s typically more expensive than life insurance. Sometimes quite a bit more. Plus, while your premium remains the same as long as you’re insured, the potential pay out diminishes as you near the end of your mortgage. In addition to that, your policy must be renewed every time you renew your mortgage or switch lenders.

The most concerning thing about creditor insurance offered by your lender is these polices, are not technically approved and will only be underwritten (approved or declined) after there has been a death.

Bank creditor insurance, sold as mortgage insurance is most often post-underwritten. What this means is you are only asked a few simple questions during the application process and then when there is a death, the lender/bank will start to investigate your medical records. They will typically contact your doctor and request your medical records. They may very well decide you did not qualify for the coverage and the mortgage is not paid out leaving the grieving family with a huge mortgage. To see more details about the pitfalls of getting your mortgage insurance (post underwritten creditor insurance) through a bank Google a YouTube video called “CBC Marketplace: In Denial”

Life insurance

When you invest in life insurance, you’ll be protected for the duration of the policy, which can last up to 30 years plus, depending on the policy you choose. The amount paid out to your beneficiary never changes, even as your mortgage draws to a close. You also won’t need to renew your policy even if you sell your home, renew your mortgage, or switch lenders. This can all add up to significant savings and is your best mortgage life insurance option.

In essence, both mortgage insurance offered by your lender and mortgage life insurance from an insurance company may serve the same purpose. However, they do have glaring differences, so it’s imperative that you do your research and consider the short-term and long-term benefits of each before selecting a policy. You can learn more about your options and how to use life insurance on mortgage by consulting a trusted insurance broker like Insurance Advantage.

(Source: CMHC hikes mortgage insurance premiums, CBC News, Feb. 28, 2014)