• Underwriting – This is often the most important issue.  With a private policy, the underwriting is done at application time and once approved, must be paid out if something happens to you.  With lender insurance, they often do underwriting at claim time and may find ways to deny your claim. 
• Survivor Options – Your surviving spouse may want to keep the mortgage in place if interest rates are low or other needs for the insurance money have greater priority.
• Flexibility – When it comes time to renew, you have the ability to switch lenders if your current one is not offering you a good renewal rate.  Your insurance policy goes with you and there’s no need to re-qualify.
• Beneficiaries – You own the policy and therefore choose the beneficiaries for your coverage.   If you buy it through your lender, you pay for the coverage but the bank pays themselves!
• Guaranteed Rates – Your premiums are guaranteed for the life of the term you choose, nobody can change them at their discretion.
• Double Benefits – A private term policy with a “Joint First to Die” option will double the benefit payable if both spouses are killed at the same time.  This can leave additional amounts available for surviving children or other beneficiaries. 
• Level Coverage – With private coverage, as your mortgage balance goes down, the benefit amount stays the same.  With lender insurance, you generally keep paying the same each month for less and less coverage. 
• Costs – In addition to all of the added benefits listed above, premiums of private coverage are often lower than lender insurance.  You also have the ability to combine your mortgage and other insurance needs into one policy and further reduce your costs. 
• Preferred Pricing – With advanced underwriting, many people can qualify for discounted coverage rates that are even lower than normal prices.
   

Insurance offered through a lender is called many names including “creditor insurance”, “mortgage insurance” and “loan insurance”.  This coverage is not designed with your best interest in mind and is often imbedded deep in the mortgage application paperwork.  Many unsuspecting consumers are simply told to “sign here” and are not explained what they’re really agreeing to. 

The good news is that even if you’ve already got your mortgage in place and signed up for this coverage, you can still get your finances back on track.  There is generally no commitment term to mortgage insurance and you can cancel and set your own private coverage up at any time.  IMPORTANT – DO NOT cancel your existing coverage without setting your new protection in place first!  Make sure you have coverage while you make this change. 

This article examines the life insurance purchased through a lender to cover a mortgage debt in the event of death.  It’s important to also consider disability coverage to pay the mortgage if you are disabled.  Talk to a financial advisor that has access to a variety of companies and they can make sure you are properly protected for both. 

Scott Millard, Senior Executive Consultant, IG Wealth Management

Investors Group Financial Services Inc.

This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities.  Scott Millard is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant. Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Canada Life Assurance Company.