There’s no doubt, your home is likely the largest purchase you’ll ever make. If you arrange your mortgage through the bank, it is their responsibility to ask you if you want to insure your mortgage through them. While it’s easy to say yes, it’s a good idea to explore your options thoroughly first. Mortgage insurance is a good idea for some, but there could be a better option – life insurance. Let’s look at each closely and compare them for their drawbacks and their benefits.
Bank Mortgage Insurance vs. Life Insurance:
Who's Selling the Product?
For the most part, the person who sells you mortgage insurance at the bank is an employee of that bank. They are trained to sell you the products and services they offer. They are not, however, trained in other options and will, therefore, not offer you a more suitable option. When it comes to insurance premiums, there are no discounts available based on your health or family history, and premiums are subject to PST.
Certified agents who have been trained in many products, on the other hand, sell life insurance products. This means that they are able to find the product that best fits you and your family. Whereas there are no discounts available through your bank, life insurance companies offer discounts based on your health and family history, and premiums are not taxable. Furthermore, you choose your own beneficiary, whereas when you go with the bank your mortgage lender is the beneficiary.
The Policy Details
When you choose bank-offered mortgage insurance, you cannot consolidate policies. That is, you have to keep your mortgage insurance policy separate from your other insurance policies. When you choose life insurance, however, you have the ability to consolidate a term life policy with other insurance coverage, which allows you to take advantage of a lower rate plan.
Life insurance is more flexible than bank-offered mortgage insurance as well. With life insurance, you are able to switch lenders and take your coverage with you if you move. If you choose, coverage can be arranged for the rest of your life. With bank-offered mortgage insurance, on the other hand, you cannot take your coverage with you, as it is limited to one specific property. Some bank-offered mortgage insurance policies have restrictions for people over 60 years of age.
The Coverage
Regardless of the mortgage amount outstanding, if you paid for $250,000 of life insurance coverage, then $250,000 will always be the lump sum payment amount. Your coverage, therefore, remains constant. With bank-offered mortgage insurance, your coverage value decreases as you make payments because it matches your outstanding mortgage balance. Your cover value, therefore, is the amount of coverage you paid for minus the mortgage principal payments you’ve made.
Renewal Options
With bank-offered mortgage insurance, you are not guaranteed renewal at the end of your mortgage term. Policy terms and your insurance provider can change as well, and you cannot be covered for life. You can buy life insurance policies, however, that extend 10, 20 and even 30 years, with guaranteed renewal at the end of the policy. Your policy terms do not change, and the policy premiums are guaranteed. What’s more, there are policies available to convert to a permanent policy. Finally, while your mortgage lender owns the certificate of insurance when you go through the bank, when you choose life insurance, you own the policy and the coverage.
The Winning Option
While it’s easy to accept bank-offered mortgage insurance, it’s not always the wisest course of action. Shop around, compare policies and make the most educated choice for you and your family. You might be surprised by what you find in term life insurance – and how open your options really are.
