When purchasing mortgage insurance, should you purchase through the lending institution arranging your mortgage?
Have you considered the following:
- A bank issued mortgage insurance policy is a group policy, client has no control. An individual insurance policy allows you complete control.
- Mortgage insurance issued by the bank is owned by the lending institution. You the client own an individual insurance policy.
- In a bank-issued mortgage insurance policy the coverage (or payout on claim) equals the outstanding mortgage amount. An individual insurance policy’s coverage does not decline in dollar amount.
- Bank mortgage insurance can be cancelled by the lending institution. An individual policy can only be cancelled by the client
- On claim the benefit of a mortgage insurance policy is payable only to lending institution. An individually issued policy is payable to the named beneficiary(ies) on claim and they have full control of the money, not the bank.
- Bank-issued mortgage insurance is non-transferable to other institutions, if you move your mortgage. An individual policy is fully transferable and flexible as it covers you no matter where you take your loan.
- Mortgage insurance is not convertible to other insurance products if you decide you need permanent coverage. An individually underwritten policy is fully convertible.
- An individual policy provides many more options and flexibility to tailor the coverage to your individual needs.
- Mortgage insurance premiums are typically not guaranteed. Individual policies have premiums that are fully guaranteed.
Individual policies give ownership of the insurance coverage to the Client. The Client controls and designates beneficiaries, allowing beneficiaries to use the proceeds in the most practical way at the time of need. The cost is fully guaranteed and the rates are very competitive. In fact, the “bank” plan level mortgage insurance rates actually translate into higher costs since the amount of insurance coverage decreases as the amount owing on the mortgage decreases through mortgage payments.
Statistics indicate an average Canadian family will move about once every five years. While a “bank” plan terminates on the sale of the house – making necessary application and approval on any new mortgage – a Life Insurance Individual Plan is fully transferable. Likewise, if the client chooses to refinance his/her mortgage with a different lending institution, the existing “bank” mortgage insurance terminates again necessitating application and approval of new mortgage insurance. Moreover, the client should be cautioned. No guarantee exists that he/she will qualify for new coverage 5, 10 or more years in the future. Lastly, an individual Life Insurance Plan can be converted to support future financial and estate planning strategies.
Is their bank mortgage insurance such a good deal?