Winnipeg - When most people buy a home they get a mortgage to help finance some portion of the purchase price. When you get a mortgage you are almost invariably going to be asked by the lending institution, if you would like to get insurance on that mortgage. Most people want to do the right thing and protect their family in case the unthinkable happens, so they say yes to getting the bank's mortgage insurance. They make it so simple, you tick a box or two, initial here, sign there and badda bing, badda boom you think you and your family are covered should the worst ever happen.
There are two main reasons I dislike the "Bank's" mortgage insurance.
First is that the insurance is essentially a declining benefit policy. So you take out a mortgage and the insurance premiums are based on what the initial balance of the mortgage is. But as you pay off the mortgage and the amount of the payout goes down, your premium stays the same. So if you start with a mortgage of $200,000 and after some hard work and diligent saving and investing you pay down your mortgage to $100,000 and then you get hit by a bus they pay out $100,000 but your premiums all along were based on the original $200,000 that you borrowed.
Secondly, most Banks and Lending Institutions in Canada use a form of insurance that processes the policies on what is called a "Post Claim Underwriting" system.
What that means is you have now qualified for the "right" to make premium payments on the insurance policy and should a claim ever arise then the insurance company starts going through your application with a fine tooth comb. If you missed something or did not quite understand something and incorrectly filled in the application form, your claim is disqualified and they will simply rebate your premiums and deny your claim. This can be DEVASTATING on a family who is already dealing with the loss of a loved one.
Check out this CBC Marketplace video that explains the the perils and pitfalls of taking your lending institution's mortgage insurance when buying your Winnipeg home.
The way I recommend that you protect your family is to get term insurance from your favourite insurance broker.
I have two reasons for suggesting this route instead of going with your bank's insurance.
First the underwriting is all done up front. They'll take a blood sample or two, you'll step on a scale, they'll take your blood pressure and make you do all the other fun stuff that goes along with getting insurance, but once they say Yes, you KNOW that you have coverage. With the bank's insurance, they don't start going through your medical files until after you've made a claim and then it's anybody's guess if you're covered or not.
Secondly, the term insurance is a "defined benefit" policy so the pay out does NOT decline as the mortgage balance does. So in the example used above, your payout would be $200,000. Your family can take $100,000 and pay off the house and then use the other $100,000 to help sustain them while they are coping with the loss.
Please feel free to contact Harry Logan at 204-667-7653 if you have any questions or if you'd like to discuss this further.