There are 2 types of mortgage insurance:
- Bank Offered Insurance ( Creditors Group Insurance )
- Personal Insurance
Creditors insurance is what most people refer to as bank mortgage insurance. The insurance your bank is asking you to sign up for is actually not issued by the bank, it’s issued by an insurance company and CBC TV did a special on the problems many Canadians are having when it comes time to make a claim. See link below.
Benefits of setting up your own personal insurance:
- You own and control the insurance and usually pay less, while getting real value.
- The money goes to your family to decide how to use the insurance money, with bank issued insurance, the money goes directly to the bank.
- As you pay off your mortgage, you can choose to reduce your amount of insurance.
- Portable, you can switch to a new lender easily. You’ll have mortgage insurance in place if you want to switch your mortgage to a new lender. It gives you a bargaining position with your current bank, letting them know that you have personal insurance in place and that you’re ready to switch lenders if they can’t match or provide a better mortgage rate for you.
- The policy is underwritten at the start. This means the insurance company has accepted you and the insurance is actually in place.
- You choose if you want to use Term Insurance or Permanent Insurance. You decide on the Face Amount of the insurance. You choose the duration and you lock in guaranteed rates.
- Flexibility to continue, reduce, cancel or convert to permanent insurance as your mortgage is paid off.
Problems with creditor (bank issued) insurance:
- You end up paying too much. You pay the same yearly premium even as your mortgage amount keeps getting smaller.
- You may be paying more than you have to, a bank’s yearly renewable term insurance can keep getting more expensive each year.
- You’re probably not getting a discount for being a non-smoker.
- You’re probably not getting a discount for being in good health.
- Your a bit trapped with your bank, you can’t take their mortgage insurance with you, it’s not portable. So when your mortgage comes due and you want to shop around for a better mortgage rate you must reapply at a new bank to see if you qualify to pay insurance premiums there but if your health has declined they may not accept you to pay premiums. You can also end up paying higher premiums based on your increased age.
- No flexibility or control. You don’t own the policy; you’re just a certificate holder. They keep control, and they can even make changes without your consent. You’re not allowed to reduce your coverage as your mortgage goes down, you’re not allowed to convert to permanent insurance, and you’re not allowed to continue your insurance when your mortgage is paid off.
- Insurance proceeds are paid only to the bank to pay off the remaining mortgage amount. They will never pay out to your family or estate, even though your family may have other monetary needs.
Be Careful: Of what you are not being told at the bank, because you won’t find out until it’s too late!
- You may NOT get the insurance, you’ve been paying for!
Click Here to see: Shocking Inside Secrets of Bank Mortgage Insurance (CBC’s Marketplace)
The typical bank issued policy is not underwritten until someone puts in a claim at death. Only at that point does the creditor insurance company do its underwriting to decide whether they will accept you for insurance or not. Many times these companies have rejected claims.