Life Insurance on Mortgage in Canada: Advantages and Disadvantages

According to Michael Babad of The Globe and Mail, many Canadians are now burdened with a huge mortgage debt, which contributed to the increase in household debt per capita for the second quarter of 2013.

“According to Statistics Canada, mortgage debt stood at about $1.1-trillion by the end of the second quarter, up by $18-billion, while other consumer credit hit $500-billion.”

For Canadians in the Greater Toronto Area (GTA) most household debt can be attributed to mortgage debt as a result of buying a home. A quick way to reduce debt would be to sell your home or not buy one in the first place and simply rent. There are a lot of people who make a strong case for this stating many advantages and savings. There are a lot of expenses associated with homeownership like maintenance, taxes, interest etc. These saved funds could be redirected to RRSPs and other savings vehicles. This would take a lot of discipline of course but it is a strategy that has its merits.

canadieans richer but saddled with record debt burden

Let’s get back to reality though; people want to own their own home.

People want a home to raise their children in and to date homes have steadily increased in value over the years. It has been a nice ride and most homes in the GTA have more than doubled in price since the year 2000. For this reason, most people will likely opt to buy a home instead of renting, making it necessary for them to apply for a mortgage.

Usually when applying for a mortgage, potential homeowners will be offered bank creditor insurance (usually called mortgage insurance) directly from their preferred lender. It seems like a no-brainer, who wouldn’t want to obtain life insurance on a mortgage? BUT, you are always much further ahead to go out and get your own life insurance policy that will pay the mortgage off completely in the event of an untimely death. The problem with buying mortgage (creditor) insurance from your lender is most of these policies are what we call post-underwritten. What this means is the lender only asks a few medical questions on their brief and speedy application and once there is a death, only then do they start the approval process by contacting your doctor and requesting your medical files. They will be looking through your medical files in an attempt to see if the questions on the application you quickly filled out when you applied for your mortgage were answered correctly. At this point if they find inconsistencies they are within their rights to deny your claim. You of course are no longer around and your family is left with a huge mortgage. If you want to see an excellent episode that was aired on CBC Marketplace that brilliantly exposes the pitfalls of getting your mortgage insurance through your lender, just Google “CBC Marketplace In Denial”,

When applying and for mortgage insurance in Toronto or elsewhere for that matter, take the time to look at all your options. Be sure to speak to an insurance broker that will walk you through the advantages of buying you own fully underwritten policy that is fully approved and ready to pay your beneficiary(s) immediately if the need arises.

For all the facts on life insurance plans, residents of Ontario can rely on knowledgeable brokers, like Insurance Advantage, who allow them to compare rates from top insurance companies in Canada to get the best deals.

(Article Information and Image from Canadians richer but saddled with record debt burden, Theglobeandmail.com, Published 13 September 2013)