Big 5 Mortgage Insurance vs Traditional Life Insurance.
September 28, 2018 | Posted by: Christopher Chanakos
Once your mortgage has been approved, and the process is nearing completion, you will at some point be presented with the option of mortgage insurance. You can choose different levels of protection including disability, critical illness, and death. The concept is great and many sign because it seems like the wise thing to do. In addition, as mortgage brokers we earn a commission when our clients sign up for this coverage. But how does mortgage insurance differ from life insurance? The biggest difference is in how they are underwritten.
If you accept mortgage insurance via one of the big five banks, you need to know that they use a practice know as post-claim underwriting. This means that your application is not actually reviewed until you file a claim. As a result, you don’t find out if you’re actually covered until the unexpected happens. Because the questions on the application are often generic and vague, there is a good chance you will answer “incorrectly” Moreover, mortgage advisors are not licenced to sell insurance and are therefore not able to clarify the nuances within the contract. As a result, when something happens down the road,it would be your Family that would not receive the intended life insurance, which could result in a terrible financial devastation. Best case scenario is that your Family (or estate) would be refunded the premiums
Traditional life insurance will not only save you money on the policy, it will offer greater flexibility. Traditional life insurance pays the FULL face amount purchased to the beneficiary The beneficiary can then do whatever they want with the funds. For example, you take a $500,000 mortgage and eight years later you owe a balance $250,000. If something were to happen, traditional life insurance would pay out the original $500,000. The big banks will only pay the remaining debt off, if you qualify.
With mortgage insurance through the big banks, the insurance is tied to that bank and that property. If you want to renew with a different lender or move to a new home, you will lose your life insurance. In addition, when you try to apply for new life insurance, you will be applying for new insurance at an older age…. Traditional life insurance will move with you. In other words, if you move to a new home, your insurance goes with you. Renew with a different lender, your insurance goes with you.
Click the link below (Ctrl + click) to watch an investigative report done by CBC Marketplace on the pitfalls of the mortgage insurance being offered by the big 5 banks.