If you have a mortgage it makes good sense to insure it. Owning a debt free home is an objective of any sound financial plan. In addition, making sure your mortgage is paid off in the event of your death will benefit your family greatly.

The question is, should you purchase this coverage through your lending institution or from a life insurance company? A good rule of thumb to follow when searching for advice? Ask an expert!

So, while it might be convenient when completing the paper work for your new mortgage to just sign one more form, be aware that it might be a costly decision.

8 reasons to purchase your mortgage coverage from a life insurance advisor

Cost

Term life insurance available from a competitive life insurance company is usually cheaper than mortgage life insurance provided through the lender. This is especially true if you qualify for non-smoker rates.

Availability

If you have some health issues, the lenders mortgage insurance may not be available to you. This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.

Declining coverage

Be aware that the death benefit of creditor/mortgage insurance declines as the mortgage is paid down. Meanwhile, the premium paid or cost of the coverage remains the same.

With term life insurance the death benefit does not decline. You decide how much coverage you want to have. This gives you the flexibility to reduce the amount of coverage and premium when the time is right for you. Or keep it should another need arise or in the event you become uninsurable in the future.

Portability

Term Life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to requalify and possibly pay higher rates.

Flexibility

Unlike creditor/mortgage insurance, term life insurance can be for a higher amount than just the mortgage balance so you can protect family income needs and other obligations, but pay only one cost-effective premium.

When you pay off your mortgage you will no longer be protected by creditor/mortgage insurance but term life insurance may continue. Also, unlike mortgage insurance, you are able to convert your term life insurance into permanent coverage without a medical.

The beneficiary controls the death benefit

With creditor/mortgage insurance there is no choice in what happens to the money when you die. The proceeds simply retire the balance owing on your mortgage and the policy cancels.

With term life insurance your beneficiary decides how to use the insurance proceeds. For example, if the mortgage carries a very low interest rate compared to available fixed income yields, it might be preferable to invest the insurance proceeds rather than to immediately pay off the mortgage.

Can your claim be denied?

Often creditor/mortgage insurance coverage is reviewed when a death claim is submitted. This means that the policy is underwritten at the time of claim and there is a potential to have the claim denied – even though you have been paying for it the whole time. Creditor/mortgage insurance allows for the denial of the claim in certain situations even after the coverage has been in effect beyond the standard 2 year contestability period.

Term life insurance is underwritten at the time of application. Once it is approved and in-force, it cannot be taken away and the insurance company is bound by contract to pay the proceeds. It is incontestable after two years except in the event of fraud. The only way a claim can be denied is if fraud in the application process can be proven.

Advice

Your bank or mortgage broker can advise you on the best arrangement to fund your mortgage but advice on the most appropriate way to arrange your life insurance is best obtained from a qualified insurance advisor who can implement your life insurance coverage according to your overall requirements.

Your mortgage will probably represent the single largest debt (and asset) you will acquire. Making sure your mortgage doesn’t outlive you is the most prudent thing you can do for your family.

Please keep in mind that this information is intended to be a quick summary only. Information is subject to change. We strongly advise you to contact us so that we can clarify any questions you may have and ensure you have the most accurate information.