Solutions for your future needs.

Book a meeting


(647) 867-7809

 

Is Mortgage Life Insurance practical?

Article Licenses: CA, DL, LI, MG, UK, US
Advisor Licenses:

Compliant content provided by Adviceon® Media for educational purposes only.


 

shutterstock_90555190

Mortgage insurance is creditor insurance which financial institutions offer to pay off the indebtedness of a mortgage if the mortgagor died during the term of the mortgage.There is another strategy to achieve this using personally owned life insurance which offers you flexible choices with more freedom as to how you will approach insuring your mortgage liability.

Compare the mortgage insurance your bank or financial institution uses for your mortgage creditor life insurance to buying your own personally owned term insurance.

Mortgage Life Insurance from the financial institution

  • Premiums can be much higher.
  • The death benefit replaces only your remaining balance of mortgage indebtedness.
  • Premiums do not reduce when your mortgage debt is reduced.
  • The death benefit only pays off your remaining mortgage debt.
  • The contract stipulates that the financial institution is the only life insurance beneficiary.
  • You cannot alter the irrevocable beneficiary of the contract.
  • The entire amount of life insurance is lost upon mortgage repayment, or when in default.
  • The mortgage life insurance is not transferrable to another financial institution or private lender.
  • Because so few health questions are required, underwriting is often done at time of claim, resulting in denied claims.
  • When you move your mortgage to another firm, you generally lose the coverage issued from an existing institution. If you have health concerns you may not be able to buy more coverage.
  • Creditor insurance may cover two parties who jointly mortgage their property. However, it pays only on the first death, even if the two were to die. When one spouse dies, creditor insurance no longer covers any survivors.
    • In contrast, by owning your own insurance policy, two spouses or partners may each own separate life insurance death benefits. In the case where both parties die, double the benefit would be paid, thus adding increased value to the estate. If one survives, the coverage on that life continues.

 

Your own Term Insurance

  • You have full control over the type of life insurance plan.
  • You can set up multiple beneficiaries, including a fund to pay off some or all of your mortgage debt.
  • Beneficiaries can choose to not pay off the mortgage if they prefer to pay off higher interest debt.
  • You can add or revoke beneficiaries.
  • Your life insurance face benefit amount does not shrink with a reducing mortgage debt, and can actually increase with some plans. Your coverage level is controlled by you.
  • Many term plans offer level premiums for longer periods or are convertible to Term to Age 100 plans, without a medical exam, even if your health declines.
    • In time, in most cases, you can reduce your coverage to have enough for the proceeds to pay your final expenses to take the financial burden from your loved ones.
  • You needn’t qualify for new mortgage life insurance if you move your mortgage to a new financial institution. You just continue using your existing term plan, which covers you regardless where your mortgage is.
  • Once your mortgage is repaid or reduced you will have life insurance to cover other liabilities or for other estate planning purposes.
  • Term insurance allows you to look at your entire capital needs and buy coverage applicable to you total needs, in the event of death.
  • A custom life insurance plan often offer other optional benefits that you can include, such as riders which can include: life insurance coverage for children, disability coverage, and critical illness coverage.
  • More control over the cost of premiums which can go up over time if you don’t own and control the life insurance contract.
  • Your insurer underwrites your policy when you apply for it. Other mortgage life insurance from a financial institution offer you little control and may choose to underwrite your health history at claim time.
  • Ask your advisor how to shift out of mortgage life insurance into personally owned life insurance to achieve the above advantages.

 


Legal Copyright Warning: Adviceon® retains all legal rights and copyright to the contents of this article, libraries and all media on this website. The unauthorized reproduction or distribution of this copyrighted work is illegal. Criminal copyright infringement, including infringement without monetary gain, will be investigated and may result in legal liability. Content is for online use with the original Internet url used and is only for educational guidance, and is not to be edited or reposted elsewhere, which is tracked online via by Adviceon®. Please read Agreement of Copyright Use & Legal Notice which applies to all who use this website with content provisioned for educational purposes only by Adviceon®. Email editor@adviceon.com

Publisher's Copyright & Legal Use Disclaimer Replication is prohibited beyond the use of this website. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision or purchase or use of a financial product, including investment or insurance products, and suggest that a professional advisor’s counsel is sought, especially with regard to Segregated Funds which have investment risks. Not to be copied or republished as all rights are reserved by the publisher © Adviceon®

Website Disclaimer This website and information is provided for your general information only, and is not intended to provide specific personalized advice, including, without limitation, investment, insurance, financial, legal, accounting or tax advice; and any reference to facts and data provided are from various sources believed to be reliable, but we cannot guarantee they are complete or accurate; and it is intended primarily for Canadian residents only, and the information contained herein is subject to change without notice. References in this Web site to third party goods or services should not be regarded as an endorsement, offer or solicitation of these or any goods or services. Always consult an appropriate professional regarding your particular circumstances before making any financial decision.

 

A A
Financium.getAdvisorInfo()=miss Financium.getPage()=miss Financium.getPage()=miss Financium.getPage()=miss Financium.getPage()=miss