The Wright Sisters Group | Union Realty Brokerage Inc. - The Beaches, Leslieville, Riverdale and East York Real Estate Specialists – Your East End Toronto Real Estate Team

Mortgages and Life Insurance

14 February 2019
LINDSAY WRIGHT

How do they fit together?

CONGRATULATIONS!
You’ve just purchased the home of your dreams with the help of your real estate agent, and your mortgage advisor has secured you a great mortgage to make this dream a reality.

While you’ve almost certainly purchased insurance to protect the home from fire or damage, should you purchase additional insurance to pay-off your mortgage should something happen to you? While owning a debt free home is a financial goal for many, putting plans in place to make sure your mortgage is partially or fully paid off in the event of your passing can be a critical part of estate and family planning.

A good rule of thumb to follow when searching for advice? Ask an expert. If the analysis points to a need for mortgage insurance, the question then becomes should you purchase the lending institution’s product that is offered with your mortgage, or should you explore stand-alone term life insurance that is available from a life insurance advisor/company?

While both options have their pro’s and con’s, other than potentially more paperwork, the stand-alone term life insurance option typically offers more overall value as outlined in the 8 key points below.

Lender vs. Term Insurance – What’s the Difference?

1 - Cost
Term life insurance available from a competitive life insurance company is usually less expensive than mortgage life insurance provided by the lender. This is especially true if you qualify for non-smoker rates.

2 - Declining Coverage
Be aware that the death benefit of lender/creditor mortgage insurance declines as the mortgage is paid down. Meanwhile, the premium paid or cost of the coverage remains the same. With term life insurance the death benefit does not decline. This give you the flexibility to reduce the amount of coverage and premium when the time is right for you. Or keep it should another need arise or in the event you become uninsurable in the future.

3 – Portability
Term life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to re-qualify and possibly pay higher rates.

4 – Availability
If you have some health issues, the lenders mortgage insurance may not be available to you. This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.

5 – Flexibility
Unlike lender/creditor mortgage insurance, term life insurance can be for a higher amount than just the mortgage balance so you can protect family income needs and other obligations but pay only one cost-effective premium.
When you pay off your mortgage you will no longer be protected by lender/creditor mortgage insurance, but term life insurance may continue. Also, unlike lender/creditor insurance, you are able to convert your term life insurance into permanent coverage without a medical.

6 - The beneficiary controls the payout
With lender/creditor mortgage insurance there is no choice in what happens to the money when you pass away. The proceeds simply pay-out the balance owing on your mortgage (or the amount of insurance if it is lower) and the policy cancels.
With term life insurance your beneficiary decides how to use the insurance proceeds. For example, if the mortgage carries a very low interest rate compared to available fixed income yields, it might be preferable to invest the insurance proceeds rather than to immediate pay off the mortgage.

7 - Can your claim be denied?
Term life insurance is incontestable after two years except in the event of fraud.
Often lender/creditor mortgage insurance coverage is reviewed when a death claim is submitted. If this is the case, the policy may allow for the denial of the claim in certain situations even after the coverage has been in effect beyone that 2 year period.

8 - Advice.
Your bank or mortgage advisor can advise you on the best arrangement to fund your mortgage, but advice on the most appropriate way to arrange your life insurance is best obtained from a qualified insurance advisor who can implement your life insurance coverage according to your overall requirements.

Your mortgage may be the single largest debt (and asset) you will acquire. Making sure your mortgage doesn’t outlive you could be the most important thing you do for your family.

For more information, or to contact an expert to find out your options, please contact Outline Financial.



*******************************************

Outline Financial is a top-rated mortgage and insurance team offering direct access to products and solutions from over 30 banks, credits unions, mono-line lenders and insurance companies all in one convenient service.
The Outline team was formed by senior level bankers and financial planners that wanted to offer their clients choice with an exceptional service experience.
www.outline.ca/ 416-536-9559 /hello@outline.ca