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Life Insurance vs. Mortgage Insurance: What's best for you?

Friday, 21 September 2018

For most Canadians, the purchase of a home is the largest investment they will make in their lifetime. During a time you are already reeling with unexpected fees and paperwork from your mortgage, you will most likely be offered “mortgage insurance”. Your lender will likely strongly recommend this as it will protect that large investment and could keep your family off the street. However, what a lot of new homeowners don’t know is that there are options, including life insurance that may be more beneficial for you. Let’s take a look at some of the differences between Life Insurance vs. Mortgage Insurance.

Life Insurance vs. Mortgage Insurance: Moving House or Changing Mortgage

If you decide to move house or change your mortgage, what happens to your insurance?  When you have mortgage insurance, you will lose your previous mortgage insurance and will have to reapply. If you are a frequent mover this is a significant inconvenience and you risk higher costs. Plus, if your health situation has changed, you may be ineligible for mortgage insurance.

On the other hand, with life insurance you can move as often as you like without losing your policy and retain the option to switch banks. As long as you regularly pay your premiums, your original insurance will remain the same. For the most part, even changes in your health will not affect your eligibility other than the typical limitations in the first two years of your policy.

Life Insurance vs. Mortgage Insurance: Handling Claims

When looking at mortgage insurance, you have a higher risk of your beneficiaries losing the insured home. This is because the banks do not qualify or underwrite your insurance when you start paying premiums. Instead, they only validate your coverage after death. This puts you at risk of them finding loopholes in the contract which nullify your contract, leaving your beneficiaries with the premiums refunded only.

On the other hand, individual life insurance validates your coverage when your policy is delivered. If it has been determined that you require health checks, they are done prior to the payment of your premiums. Furthermore, after the first two years of coverage the insurance company cannot challenge your beneficiaries’ claim on health-related grounds.

Life Insurance vs. Mortgage Insurance: Bonus for Great Health

If you are in great health you may be wondering if you can get a better rate. Preferred rates are not typically offered if you have mortgage insurance. On the other hand, life insurance companies offer preferred rates to those who have deemed to be of above average health!

Life Insurance vs. Mortgage Insurance: Conversion to Permanent Insurance

For mortgage insurance policies, bank-issued mortgage insurance policies have no conversion rights. On the other hand, the majority of life insurance policies allow you to convert your term life insurance plan to permanent life insurance.

Life Insurance vs. Mortgage Insurance: When Your Mortgage Ends

What happens after your mortgage is paid off? Once your mortgage is paid off, mortgage insurance does not continue. On the other hand, even if your entire mortgage is paid off, your life insurance coverage continues until the end of your contract .

Life Insurance vs. Mortgage Insurance: Custom Plans

With mortgage insurance, you cannot integrate other types of coverage with your policy. These are typically very inflexible mortgage products. Conversely, with life insurance a good broker will help you to tailor a plan that will suit your situation. This can include disability or critical illness coverage.

Which Type of Insurance is Best for Me?

Prior to making your decision, here are some questions you should ask yourself:

  • Do you want to own your policy?
  • Would you want the option to choose the beneficiary?
  • Do you want to have options on the utilization of the money in the future?
  • Do you want to guarantee that your beneficiaries will receive the  insurance pay-out? Read this story of one unfortunate family.

In almost every case, the answer is very clear. Life insurance offers lower costs, ownership of policy, upfront underwriting, and more options in the future. Which oftentimes is far more beneficial for you and your family. Contact us now to speak with a broker. One of our team members will be happy to answer any questions you may have and discuss your options.