Mortgage Insurance: Bank vs Life Insurance Company – Why they are different

Having just recently moved into a new home, I remember signing the mortgage documents and was amazed how the bank tied the mortgage insurance questionnaire into the contract. I had to take a second look to make sure that I had read the document properly. I forgot about how easy it is to get mortgage insurance within that contract and got angry that I had to sign that portion of the contract anyway (even though I refused the mortgage insurance).

Before becoming a broker, I refused the mortgage insurance because was always told to do that – As a broker, I feel it necessary to outline the difference between the bank and insurance companies – so that you can take control of your own destiny for your spouse and /or kids.

Newsflash: Mortgage insurance is life insurance: The coverage usually declines over time as your mortgage decreases (I would recommend other options than declining benefit, but this isn’t the article for that and it also depends on your personal situation)

Below are 2 lists outlining some of the key differences between getting the mortgage insurance from the bank and taking out your own life insurance policy through a life insurance company. Read them over, ask any questions that come up and make an informed decision. For most of us, our home is our biggest investment – let’s make sure it is still there for our family should the unexpected happen.

1. (Typical) Bank Mortgage Insurance Policy Features:

The policy:

Is a group policy
You don’t own it
You have no control
Is underwritten at claim time
Can be canceled by the bank and/or the group underwriter
Is non-transferable to another bank or mortgage

Coverage:

Is equal to the outstanding mortgage amount – as your mortgage decreases, your coverage decreases very few additional benefits can be added

Premiums:

Not Guaranteed

Payout:

Money goes to the bank

2. (Typical) Life Insurance Company Insurance Policy:

The Policy:

Owned by you
Can only be canceled by you – in writing or if you stop paying for it
The policy is transferable
The policy can be convertible to whole life insurance (depending on the policy you choose)
The policy is underwritten at the beginning – if you are approved, then you are covered.

Coverage:

Can decline with your mortgage (but seriously – many people don’t choose this option – level coverage is pretty common in my experience)
You can get benefits like: disability waiver of premiums, critical illness rider etc.

Premiums:

Are commonly Guaranteed – you would enter into a contract that is 10 or 20 years of level costs and coverage

The Payout:

Goes to whomever you wish it to go to. For example: If you want the funds to go to your spouse and if they wish to pay off a portion of your mortgage then they have that flexibility.

 

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