Many Canadians purchase mortgage protection insurance to be able to pay their mortgage in the event of illness, accident or death. Mortgage protection insurance alleviates mortgage payment obligations, avoids passing on the unexpected burden of a mortgage and essentially makes your home mortgage-free. The insurance benefits you, your spouse or partner and/or your dependents and is especially helpful if you are the main breadwinner in your family and know that your dependents would be unlikely to be able to make the continued mortgage payments without your income.
When you purchase a fixed term mortgage insurance policy through a bank or mortgage broker, the policy typically matches the length of your mortgage term (up to 30 years). The policy would cover the remaining years of mortgage payments owed to ensure that your family could continue to live in the home and payments would continue to be made. However, the insurance protection from mortgage insurance reduces with your mortgage balance without also reducing your monthly premium. Once triggered, the policy will usually pay off the outstanding principal balance of your mortgage up to a specified maximum amount.
The Perils of Mortgage Protection Insurance through a Bank
One of the concerns about mortgage insurance arranged at a bank is that the insurance is secured up front with post-claim underwriting. This essentially means that your eligibility for mortgage insurance is determined only at the time when making a claim, so you could falsely believe that you have mortgage insurance protection and pay the premium for years before finding out if you are actually covered. This fact can be alarming if you or your dependents find out the hard way that coverage is denied when it is needed.Premiums for mortgage insurance available at a bank can change at mortgage renewal – which is usually every one to five years. Higher premiums result each time you reapply at an older age, expiry usually occurs at age 70 or earlier (often at age 65) and there are no premium discount for healthy individuals.
Independent Broker Insurance Options
When you are in the market for mortgage insurance, a professionally licensed broker will help you to obtain the insurance protection you need. The mortgage protection does not have to be packaged with the actual mortgage product or lender. It can be carried with you, unaffected by changing interest rates and have flexibility built in instead of being bank specific. The cost of purchasing mortgage insurance or life and disability insurance is nearly the same, but the features are often much better through an independent insurance broker. For example, through an independent mortgage broker you can obtain mortgage protection insurance or disability insurance that defines disability according to your “regular occupation” to age 65 instead of needing to be disabled from “any occupation” after the first two years in order to continue to be eligible for disability payments.
An independent insurance broker will help you to obtain an insurance plan that you own and have control over. Buying individual term life and disability insurance instead of a mortgage protection insurance can be beneficial because the amount you are covered for remains the same and does not decline as your mortgage balance declines. If you think you may need more insurance in the future, you could seek a “future insurability option,” which essentially underwrites you for a higher amount that you can use later without having to obtain a new medical exam. You can also purchase a decreasing life insurance term plan if you believe that your mortgage balance will only decline. Further, by purchasing life insurance instead of mortgage insurance, you have more flexibility with how the funds are spent; when you receive life insurance proceeds when the primary breadwinner passes away, then paying off the mortgage may not be the best option or the first priority for available funds in paying off the breadwinner’s debts.
Finally, when you work with an independent insurance broker you can combine your various insurance needs to get a lower rate on your plan. Bundling services leads to discounts as the cost per thousand dollars is lower with higher coverage amounts.
Contact us at HDF Insurance
If you are planning to purchase mortgage insurance, consult with a licensed independent insurance professional. At HDF Insurance in Edmonton, we have in-depth market knowledge and regularly deal with mortgage protection insurance, life and disability insurance and home insurance for our Edmonton area clients. Our experienced brokers can help you determine what type of insurance policy would best suit your needs and the amount of coverage needed. We can offer some of the most competitive insurance rates in the industry. Contact us today at 780-488-0934 and speak with a broker to obtain a competitive quote.