If you have a mortgage it makes good sense to insure it. Â Owning a debt free home is an objective of any sound financial plan. In addition, making sure your mortgage is paid off in the event of your death will benefit your family greatly. Â Â
The question is should you purchase this coverage through your lending institution or from a life insurance company? Â A good rule of thumb to follow when searching for advice? Â Ask an expert!
So, while it might be convenient when completing the paper work for your new mortgage to just sign one more form, be aware that it might be a costly decision.
8 reasons to purchase your mortgage coverage from a life insurance advisor
Cost
Term life insurance available from a competitive life insurance company is usually cheaper than mortgage life insurance provided through the lender. Â This is especially true if you qualify for non-smoker rates.
Availability
If you have some health issues, the lenders mortgage insurance may not be available to you. Â This may not be the case with term life insurance where competitive underwriting and substandard insurance are more readily attainable.
Declining coverage
Be aware that the death benefit of creditor/mortgage insurance declines as the mortgage is paid down. Â Meanwhile, the premium paid or cost of the coverage remains the same.
With term life insurance the death benefit does not decline. You decide how much coverage you want to have. Â This gives you the flexibility to reduce the amount of coverage and premium when the time is right for you. Â Or keep it should another need arise or in the event you become uninsurable in the future.
Portability Â
Term Life insurance is not tied to the mortgage giving you flexibility to shift it from one property to the next without having to requalify and possibly pay higher rates.
Flexibility
Unlike 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 creditor/mortgage insurance but term life insurance may continue. Â Â Also, unlike mortgage insurance you are able to convert your term life insurance into permanent coverage without a medical.
The beneficiary controls the death benefit
With creditor/mortgage insurance there is no choice in what happens to the money when you die. Â The proceeds simply retire the balance owing on your mortgage 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 immediately pay off the mortgage.
Can your claim be denied?
Often creditor/mortgage insurance coverage is reviewed when a death claim is submitted. Â Creditor/mortgage insurance allows for the denial of the claim in certain situations even after the coverage has been in effect beyond that 2 year period.
Term life insurance is incontestable after two years except in the event of fraud.
Advice
Your bank or mortgage broker 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 will probably represent the single largest debt (and asset) you will acquire.  Making sure your mortgage doesn’t outlive you is the most prudent thing you can do for your family. Â
Contact me if you think it is time to review your current insurance protection or please feel free to use the sharing icons below to forward this to someone you think may benefit from this information.
Many of us purchase large amounts of low cost term insurance to cover our needs while we are raising our families or growing our businesses. However, as the saying goes, “there is no free lunchâ€. Eventually this low cost term insurance starts to become expensive and other options should be considered. Â
If your health has changed and you are no longer able to qualify for a new permanent insurance policy don’t worry, your safety net is the conversion option in your existing policy.
4 reasons to convert your coverage:
A change in your health – you are no longer able to qualify for life insurance or you have received a sub-standard rating.
A change in your residency – after you obtained your policy you relocated to another country.  Most insurers in Canada will not offer new coverage if you are living abroad.  Since the conversion feature in your policy is contractual converting to a permanent plan is allowed no matter where you reside.
A change in occupation – health is not the only reason an insurer may rate (apply substandard rates) or deny your application for new coverage.  If you have changed occupations and now are employed in a more dangerous job, conversion allows you to obtain permanent coverage at standard rates.
Convenience – Once you have decided that permanent insurance is required converting your existing term insurance is the easiest way of getting it.  Usually just your signature on a conversion form is all that is required.
When is the best time to convert?
Sooner rather than later – The low interest rate environment has resulted in the insurance companies regularly raising their long term insurance premiums. In this case, age is more than just a state of mind.  As you age your premiums increase significantly so it is always best to convert as early as possible. And to add insult to injury, insurance age changes 6 months prior to your birthday!
Before your term insurance renews – If you are unable to replace your term insurance at renewal because of health, residency or occupation, your premium to renew will be substantially higher than what you are paying now. Converting to a permanent plan usually makes sense plus the converted premium is locked in and guaranteed for the rest of your life.
Before the Conversion Option expires – Conversion options vary but usually policies are convertible up until age 65, 70, or 75.  Waiting to convert will cost you more, increasing the risk of it becoming unaffordable when you may need it most.  It is important not to let your option pass without full consideration.
Prior to January 1, 2017 – The government is making changes as to how the cash value growth of a life insurance policy will be taxed.  Generally, policies issued on or after January 1, 2017 will not perform quite as well as ones issued before that date.  If you are planning on obtaining a cash value life policy (Universal or Whole Life), you should do so before that date.
The Conversion Option contained in your term insurance policy is a very valuable feature that varies from company to company. Â It may be appropriate to schedule a review to determine if you have a permanent need for insurance.
Please call me if you think you would benefit from a review of your current insurance. Â As always, feel free to use the social sharing buttons below to share this article with a friend or family member you think might find this information of value.