Most people would agree that insurance is an important part of financial planning. Its purpose is to protect you and those who depend on you should the unexpected happen.
For this reason, many people choose to add bank-provided insurance when they are negotiating their mortgage. For most individuals, a mortgage is the largest single debt they will ever incur - it makes sense and seems responsible to not leave this debt unsecured. It is a quick decision made when feeling very vulnerable.
While the banks have made this process very quick and easy, it is a good idea to research all of your available options before you decide how to protect your family.
Options | Life Insurance from a life insurance company |
Mortgage Insurance from a bank or lending institution |
---|---|---|
Post Claim Underwriting * | All medical underwriting is done prior to the issue of a policy | All medical requirements are investigated at the time of claim |
Coverage | Based on a financial need analysis, you will choose the amount of coverage that meets your needs and objectives . Your premium and coverage will remain constant through the duration of the contract | The amount of your mortgage - while your mortgage decreases with every payment that you make, your insurance premium will stay the same |
Beneficiary | You choose the beneficiary for your life insurance policy | The bank or lending institution is your beneficiary |
Guaranteed Terms of Coverage | Yes - your coverage and rates remain constant through the duration of the plan | No - your bank can change your coverage amount and rates at any time |
Use of Life Insurance Proceeds | The beneficiary can use the tax-free benefit for any purpose . ie, mortgage and other debt repayments, daily living expenses, planning for the future of your children | No - the lending institution owns these funds |
Transferability (Portability) | Yes - you are the owner of the policy | No - if you move your mortgage to a new lending institution, you must re-apply. If you become un-insurable, you will be further tied to your existing mortgage provider |
Preferred Rates | Non-smokers and clients with healthy lifestyles are eligible for premium discounts | Not available - everyone pays the same rate |
This is the most important difference between insurance provided through the bank and insurance provided by a life insurance company. A bank will begin to assess your eligibility to life insurance only once a claim has been submitted . it is at this point that your medical information will be reviewed and a decision will be made to pay your claim or not. With a life insurance company, your medical history will be reviewed prior to the issue of your life insurance policy. The only reason a claim would not be paid is in the case of fraud or material misrepresentation.
Please view an investigative report completed by CBC's Marketplace