This article was reviewed by Chris Singer, CFP®.
Not knowing could cost you thousands!
Did you purchase the coverage offered to you by your lender? Most people have a mortgage in Canada and it is typically the largest debt most Canadians will ever assume. Before buying a house people will research and compare to find the best mortgage rates and terms but not necessarily the best insurance coverage.
Do you know the pitfalls of purchasing mortgage insurance from your lender? The coverage is called creditor insurance, aka mortgage insurance. When you apply for a mortgage from a lender you will be asked, do you want coverage, if so answer these simple questions. Many people answer yes to the coverage as it is easy and convenient, but not knowing your options can cost you thousands.
Pitfalls of Creditor Insurance
1. Underwriting is done at time of claim. This means you really don’t know if you are covered until you make a claim. Watch the CBC Marketplace episode below about two families that were denied their claim after losing a loved one.
2. You do not own the policy, the lender does. That means they can make changes to the overall coverage without your consent.
3. The premium remains the same, but the coverage decreases along with the balance of your mortgage.
4. You need to re-apply if you change lenders. If your health has changed you could be declined.
5. You cannot name a beneficiary. It may not be in your best interest to pay the mortgage off in full at time of death, it is best to keep your options open.
6. The policy cannot be used for other needs down the road. If you require insurance for another purpose it cannot be converted or transferred.
All of the pitfalls listed above can be avoided with personal insurance. Take the time and get the proper insurance in place to cover your mortgage plus any other needs. If you have any questions or you would like your insurance reviewed, please let us know.