7 Reasons Why Not to Buy Bank Mortgage Insurance

1. Coverage Usually Is Not Sufficient

Your life insurance need often goes beyond just your mortgage balance. Consider immediate needs such as debt and final expenses but make sure to include the ongoing needs of your dependents. Let us help you calculate your actual insurance need. Don’t waste your time getting partial coverage. You deserve to be fully covered.

2. It is a Group Policy, You Don’t Own It

That’s right – the bank owns the insurance policy, not you. Which means that the bank can change the terms or cancel your coverage at any time.

3. The Beneficiary is the Bank, Not Your Family

With bank mortgage insurance, the bank is the beneficiary and there is nothing you can do about that. You bought mortgage insurance to protect your family, not the bank.

4. Rates Go Up at Renewal and You Cannot Transfer

Banks love to tie mortgage insurance into your mortgage agreement. Why does that matter? Because when it’s time to renew your mortgage (every 5 years typically), you’ll need to renew the mortgage insurance policy as well. Your new premium will be based on your outstanding mortgage balance, which is smaller than before, but doesn’t mean you’ll be paying less. Because you’re older, your premium will likely go up. And if you take your mortgage to another company, you can’t transfer the policy. You will lose your existing mortgage insurance and have to re-qualify for new coverage. So while rates for bank mortgage insurance are cheaper when you’re young, they get extremely expensive as you get older.

5. Everyone Pays the Same Rates

Because bank mortgage life insurance is a group policy, everyone pays the same rate. It doesn’t matter if you’re doing everything you can to be healthy, you’ll be paying the same rate as a smoker. Definitely not the best deal in town – if you are healthy, you should be paying cheaper rates.

6. The Coverage Declines Over Time

You started with a mortgage of $500,000, so you pay premiums based on this $500,000 amount. However, if you die and your mortgage balance is $400,000, the bank will only pay $400,000 even though you have been paying premiums for $500,000 of coverage.

The bank’s mortgage life insurance benefit value declines as you pay down your mortgage. So, the banks will only pay whatever is left owing on the mortgage even though you are paying premiums for a higher benefit amount

7. You Could Be Deemed Ineligible Years Later (The #1 Reason)

With bank creditors insurance your insurability is decided upon AFTER the claim is made. The process of underwriting is completed after the fact unlike personally owned life insurance policy in which underwriting occurs BEFORE an approval. This “post-claim underwriting” is the biggest pitfall to bank mortgage life insurance.

Watch the CBC Marketplace In Denial - Mortgage Insurance, Not Always a Sure Thing

Conclusion

Since bank mortgage insurance is a group policy that only assesses if you are eligible for coverage at time of claim (by that time it’s too late), many people are denied payment. All this despite the fact they have been paying premiums for years and the bank never said anything.

Don’t let this happen to you and your family.

An alternative is to apply for a personally owned policy, for the following reasons:

No coverage limit
Cheaper premiums
The beneficiary can be whoever you want
Benefit value does not decline over time
The terms cannot be changed or cancelled on you
Doesn’t matter if you change banks at mortgage renewal
Eligibility is assessed by insurance company (not you) before policy is issued
Payout is guaranteed at time of claim (unless you intentionally lied about something)

Want to learn more? Book a meeting with us.

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7 Reasons Why Not to Buy Bank Mortgage Insurance