For most Canadians, purchasing a home can seem quite overwhelming, with so much information (e.g., your mortgage, land transfer tax, lawyer fees, etc) that often your Mortgage Life Insurance becomes a second thought. Many Canadians end up purchasing life insurance through their lender without really understanding what they have purchased.

Although the mortgage insurance offered through your bank/financial lender is not a bad plan, it does come with a few drawbacks:

• Plan Structure – Normally are not competitive with what’s available.
• Mortgage insurance is non-transferable
• Who’s really covered? – Are you protecting the bank or the people you care about?
• Cost – For the majority of the time, you’ll save money when you shop around.

An alternative to a lender’s mortgage insurance plan can be obtained directly from an insurance broker. This enables you to have a superior plan at a lower cost.

Let’s take a deeper look at these three points

Plan Structure

There are a number of disadvantages when it comes to purchasing life insurance through your lender. One major disadvantage is the plan structure. When you purchase life insurance through your lender you are purchasing depreciating coverage. Meaning, your cost to own the coverage stays the same every month however the amount of coverage you have decreased. Most other life insurance plans offer level coverage. Meaning that as your pay down your mortgage, your coverage remains the same. Giving your beneficiaries a chance to pay off the mortgage and still have some benefits left over.

Mortgage insurance is Non-Transferable

Another major flaw in this plan structure happens when you want to change your mortgage. Let’s say you’ve purchased your house and a few years have gone by and you found a better mortgage and now you want to switch your mortgage. Unfortunately, that means you will have to switch your coverage as well because mortgage insurance is non-transferable. This will end up costing you more. Not to mention, if you became sick, or became critically ill, you might not be able to purchase any coverage. Which would end up financially hurting your loved ones.

Your Beneficiary

When you purchase coverage through the lender, the lender becomes the beneficiary. However, when you purchase life insurance directly through an insurance company or life insurance broker your loved ones become the beneficiary and receive the benefits if something were to happen.

Think of it this way, if something were to happen to you, would you want the benefits being paid to the bank or your loved ones?

Cost to Own

What shocks most people is when they find out they can get a better plan at a lower cost. By going direct to an insurance company or life insurance broker you save as much as 35% when comparing to mortgage insurance.

In short, you can get coverage that:

• Costs less
• Has level coverage (not depreciating)
• Is transferable (regardless of how many times you change your mortgage)
• Gives your loved ones control of the benefits (not the banks)
• You won’t have to worry about re-applying if you change your mortgage

   

All by simply going directly to an insurance company or life insurance broker.

Don’t be like many Canadians who are under the impression that all mortgage insurance plans are relatively the same and since the lending institution is offering them the best mortgage rates, the insurance plan must be competitive as well. This is simply not true.

Get the right coverage for you, and to shop the market to find the best price for you CLICK HERE.

In simple terms, most of the time Mortgage Life Insurance is not mediatory. This is highly dependant on your lender as few lenders will make it mandatory in order for you to qualify for a specific type of loan.

What is mandatory is you sign off and acknowledge your decision. Most Mortgage Life Insurance applications require you to initial one of 2 areas acknowledging your decision to either purchase or waive the coverage. 

However, the coverage offered by the lender will not be the most affordable option, in most cases, you will be offered coverage that is 30-40% more expensive than other carriers on the market. This is why it would be best to shop the market and find the best price given your specific situation. 

Life Insurance becomes highly recommended when you consider what would happen if you (or your spouse) if they were to pass away unexpectedly. Many Canadians cannot afford their monthly expenses on only one income. So the options become fairly simple, purchase a life insurance product before its too late, or downsize to a lower lifestyle. 

Let’s take a look at the differences between mortgage life insurance and life insurance purchased directly through an insurance company.

Transferable Vs Non-Transferable

Life insurance purchased through a life insurance company is transferable. Meaning your policy is transferable between loans. You do not need to re-applying just because you are applying somewhere else for a mortgage. 

Mortgage Life Insurance purchased through the lender is non-transferable. When you change your mortgage you will need to re-apply for coverage. Because you are older, the coverage will be more expensive than having the original policy set up in the first play. 

Level vs Decreasing 

Life insurance purchased directly through an insurance company is level coverage. Meaning you will be paid the same amount whether you are 5 years into your mortgage or 15 years. Why clients prefer this is there is always money left over. Let’s say you purchased a $500,000 mortgage. And in the next 10 years, your mortgage is only $400,000. Your coverage will still be the original $500,000. You could pay off your mortgage and still have $100,000/ 

When you purchase through the lender. You are not covered the same. Their coverage is decreasing. Sticking with the same $500,000. That means you would not have to pay your mortgage, but you wouldn’t be able to have the additional coverage in place. 

Price 

Last but not least, price. Coverage purchased directly through an insurance company is on average 40% more affordable. This becomes a big deal when you see you are overpaying for worse coverage. 

For more on what coverage is right for you CLICK HERE to get a FREE Life Insurance quote. 

Many Canadians have a lot on their plate, they spend time looking for their dream home, dealing with matters at work, negotiating mortgage rates, and much more. This is why Mortgage Life Insurance becomes an important decision, but not one they want to spend an unnecessary amount of time on. 

When we compare Mortgage Life Insurance from your lender vs going direct to an insurance company, there is one competitive advantage the insurance company offers. That is that their plans are independent (often referred to as Transferable). Meaning you do not have to change your Life Insurance just because you found a better mortgage and decided to change it 3 years after making your original decision.

Most of the times when you purchase Life Insurance through your lender, your Life Insurance also gets tied to the lender (Non-Transferable).

That means if you switch lenders in the years to come your Life Insurance will need to be repurchased at the time of signing your new mortgage.

Here are the problems that comes with waiting until the new mortgage signing:

1. You are now older, so your rates will be more expensive to get the same amount of coverage 
2. Its another decision you have to make 
3. Your health may have changed, potentially making you either uninsurable or insurable at a much hire rate. 

By taking the easy option and just taking the coverage that the lenders have to offer you at the time of purchasing your mortgage, you run the risk of putting yourself in a more risky situation for later on. 

Be smart about the coverage you take on. After all, the purpose of it is for the people you love and care about!

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It’s no secret that when you sign a mortgage in Canada you have to also sign off on a Mortgage Protection Plan (MPP). This often seems like a good deal to many families. You pay a little extra every month and in the event, you or your spouse passes away your mortgage is paid off. However, you will also want to ask yourself if this is a good deal. You see, many Canadians shop for the best mortgage, why not shop for better Mortgage Insurance coverage?

One TIP that many Canadians overlook is the coverage you get through MPP is a decreasing amount of coverage. Meaning every month you pay the same amount for less and less coverage. But it doesn’t have to be this way.

When you go direct to an insurance company you get a level amount of coverage. This is very important because if something ever happened to your loved one, you would be able to pay off your mortgage and have some money left over. And the best part is, it’s the more affordable option. With most of our clients saving 40% when compared to MPP.

If you want to shop the market to find the best coverage for your own situation you can click the link below and get an instant quote.

Confused about your life insurance options? Here are our TOP 10 tips when purchasing life insurance.

1. Purchase life insurance when young

It is no secret, the older you get, the more it cost to own life insurance. Considering your need for life insurance is greatest when you are young (with a family, debt, mortgage etc) it is also when it is most affordable. It always makes more sense to look at your options when you are young.

2. Go for level premiums if you are thinking long term

Level premium means you know exactly what you will pay for your policy. Term 100, Whole Life, and universal life all offer level premiums. Level premiums mean you can plan for the future and know regardless when that day comes your family will be taken care of.

The alternative would be a increasing policy, also known as term insurance. Where your premiums start low but over time increase. Eventually term coverage becomes unaffordable. But there is good news, you can purchase term insurance to cover temporary liabilities like your mortgage. This will keep your cost down while getting you the coverage you want.

3. Think about your income

When you pass away so does your income. More and more families today rely on 2 incomes to survive. Life insurance can be used to help replace some of that income so your families won’t suffer.

4. Consider Critical Illness and Disability Insurance

Life insurance is there to protect your loved ones in the event you pass away. But what if you become unable to work or critically ill? If you or your family would not be able to continue to pay your expense you should consider disability insurance or critical illness.

Disability coverage will continue to pay you an income in the event you are unable to work due to injury or sickness.

Critical illness protection pays out a lump sum if you are ever diagnosed with Cancer, heart attach or stroke. Some polices will have more illness covered. Look into your options when purchasing CI.

When purchasing life insurance its best to consider disability and critical illness insurance too.

5. Change your life style

For some of you your weight or life style is what is increasing your cost to own life insurance. There are actually companies that will lower their premiums for people who are actively improving their life style.

6. Review your policy

Your need for life insurance changes over the span of your life. It’s best to review your policy every few years as you may need more or even less coverage.

7. Application process is easier than you think

Most people forget this but you need to be approved before you can accept the coverage. That approval process is the application. Ask your advisors what the application process is and what you can expect. Here is the hint: it is easier than you think.

8. Choose the best policy for you

As mentioned, you have a few different options when purchasing life insurance. The best way to choose what policy is right for you is to understand why you want the coverage in the first place. Are you looking to cover a mortgage, replace a income or cover final expense. Then ask whether your coverage protects you. It is that simple.

9. Get a few options before deciding

Most people do not understand what options exist when purchasing life insurance. Regardless of the company you are looking at its best to get a few options to really understand which is best for you.

10. Not deciding doesn’t only affect you, it affects your family

The hard truth is that by not deciding means your family and your loved ones are not protected. It is always better to get some coverage in place, then let your loved ones suffer.

During real estate transactions, people are bombarded with so much information (e.g., Mortgage, Land Transfer) that nobody has the time or the patience to research for the best Mortgage Insurance coverage. You spend all this time to make sure your mortgage is right, shouldn’t your mortgage insurance be set up correctly too?

Although the mortgage insurance offered through your bank/financial lender is not a bad plan, it does come with a few drawbacks:

• Plan Structure – normally are not competitive with what’s available 
• Covered Benefits – Except mortgage life insurance
• Premiums – Majority of time you’ll save money when you shop around

An alternative to a lenders mortgage insurance plan can be obtained directly from an insurance broker. This enables you to have a superior plan at a lower cost.

Three main types of Mortgage Insurance Plans offered:

Mortgage Life Insurance is designed to insure the outstanding mortgage balance at the time of the insured’s death.

The insurance coverage is directly related to the mortgage. The insured’s beneficiary does not see the money. If the mortgage borrower (or the insured) were to pass away while the mortgage insurance was in force, the coverage will pay off the outstanding balance of the mortgage. The majority of lenders who offer Mortgage Life Insurance have a $750,000 maximum cap on coverage.

Mortgage Critical Illness Insurance or Living Benefit can protect you in case of major illness.

Usually, it only covers:

• Cancer
• Stroke; and
• Acute heart attack

If the insured is diagnosed with any of the three illnesses and survives the waiting period, the insurer pays off the outstanding balance of the mortgage (up to a maximum amount).

This is very basic critical illness coverage.

Mortgage Disability Insurance replaces the mortgage payments (up to maximum amount) in the event the borrower(s) become disabled due to covered medical condition. Similar to the Mortgage Life and Mortgage Critical Illness insurance, Mortgage Disability is a very basic plan.

How It Works:

• The Mortgage Insurance is established based on the initial amount of mortgage.
• Mortgage Critical and Disability Insurance can only be added as a supplemental coverage to Mortgage Life Insurance. Usually lenders don’t offer CI and Disability coverage without Mortgage Life Insurance.
• If the Mortgage is jointly owned, then the coverage is set up as ”Joint First-to-die Death Benefit” coverage. 
• The borrower(s) (or the insured) pays the lender the monthly premiums for the insurance. In return, the coverage is in place to cover the outstanding mortgage balance (up to a maximum). 
• Many lenders, such as RBC Bank, use a third party insurance company such as Canada Life, even though they have an in house insurance department. 

The majority of lending institutions offer mortgage insurance protection to their clients. Usually, the coverage is obtained at the time of signing the loan documents.

Many Canadians are under the wrong impression that all mortgage insurance plans are relatively the same – and since the lending institution is offering them the best mortgage rates, the insurance plan must be competitive as well.

It’s important to know what kind of coverage you have and what plans are available.

Term Life Insurance Options

When it comes to term life insurance you have a lot of options. Let’s talk about your options and what makes the most sense. 

Term life insurance has several options. 5 Year terms, 10 year term, 20 year term and 30 year term. All that means is you know EXACTLY how much you will pay and what coverage you have for that time period. Simple to understand. 

Here’s some tips to look out for:

5 Year term is not a good choice. When you compare 5 year term and 10 year term, it almost the same price. It makes more sense for you to pay the same amount for 10 year term than pay for 5 years and then have your rates to go up. This is one of the reasons most companies do not offer a 5 year term anymore. 

Term 10 is the most affordable option for you today. That being said you need to factor in how long you will need the coverage. For example, because rates go up at year 10 if you factor in the higher rates and you need the coverage for 20 years it no longer is the most cost-effective option for you.

Term 20 work like a term 10 policy. The only difference is you are guaranteed a longer time. 

But let’s look at a term 30 policy. Because they start to act a little differently. Some term 30 polices have added benefits that other policies don’t. Years 16-20 of a term 30 policy has three options you.

• Cancel your payments and get a reduced coverage for the remainder of your term 30
• Cancel your payments and get a small amount (typically around 15-30k) of coverage for the rest of your life
• Cancel your payments and get a small amount of money back

All the options are available for you. Yes, a term 30 will cost you more per month then any other option, however, if you are looking to cover a 25-year mortgage term 30 offers you a lot more than the other options. 

• Depending on your policy, your insurance costs may stay level.
• The plan might let you pay for a limited time and then never again. Similar to a mortgage eventually you pay it off and own the coverage forever. 
• It gives your family or other beneficiaries a tax-free lump sum payment after you pass away.
• Some permanent policies generate dividends, which you can use to increase the death benefit or cover your premium payments.