I just watched marketplace episode on mortgage insurance and it was a very dramatic presentation. It profiled 2 families who thought they were getting a deal with the bank’s mortgage insurance policies and were subsequently denied the pay out at claim time. These policies are underwritten at claim time and are very dangerous things to have.
The people featured in the episode both signed up for mortgage insurance through a major bank. The policies issued with your mortgage are cheap and easy to fill out. The problem is that the company determines your eligibility for the insurance payout when you make the claim.
Why is this a problem?
This is a problem for a few reasons including:
- First: You are healthy now – who knows what your condition will be at claim time.
- Second: The questionnaire is tricky: they ask questions that are a paragraph long and require a single “Yes” or “No” answer.
- Third: The person selling it to you is not a licensed broker – As licensed brokers we go through extensive training and continuing education to ensure that you get the most expert advice (not just how to sell the product).
- Fourth: You get what you pay for – If it sounds too good- it usually is.
- Finally: Medical Underwriting should be done at the onset – As opposed to the bank’s application, the application for insurance that you fill out with a broker is much more detailed and you will usually have to pass a medical to be offered a contract – Know if you qualify right from the start so that you still have options.
The program was geared towards consumer education with a significant bias towards brokers. If you read my article (from November 16th, 2007) on the differences between bank mortgage insurance and life insurance from a broker you will find that it is less bias than the show was (I don’t attack the banks).
In the end, you will have to make your choice that fits your budget – try to shop around. Don’t be forced to buy something over the phone – life insurance and critical illness insurance are vital coverages that cannot be applied for when needed: Chose Wisely.