Mortgage Life Insurance - What you should know

If you've ever had a mortgage, chances are you've been offered mortgage insurance. When it comes to mortgage insurance, I find the majority of people out there just sign up for whatever's offered, whether they understand what they're signing up for or not. Not to say this is good, or bad for the client, but I think it's important everyone have a general idea about what mortgage insurance is, and some key misconceptions out there. I should first say, I'm a mortgage broker, and not an insurance agent, I'm not licensed in insurance, so I only know what i've taken upon myself to learn. It's always a good idea to consult a licensed insurance expert to verify information, as most mortgage brokers and bank mortgage reps, are not licensed in insurance.

The basics on Mortgage Insurance:

• There are several different coverages you can apply for including life (that typically pays off the balance of your mortgage if you pass away), disability (that can either pay the balance of your mortgage, or make mortgage payments for a pre determined amount of time if you become disabled), or critical illness (that can either pay off your mortgage balance or make your payments for you, if you become critically ill).
• Any mortgage insurance that pays off the balance of your mortgage only pays that, the balance of your mortgage. So the coverage that you're provided with is a declining balance (as you pay your mortgage down over time). There is no remainder amount paid directly to you typically.
• Any benefits paid, are paid directly to the lender
• There are several different types of coverage (as with any insurance), that can include lender policies, brokerage policies, private policies. Any coverage has its benefits and drawbacks, so it's important to be informed on what you're signing up for.
• Mortgage insurance is different from term insurance, as it covers your mortgage balance only, compared with term insurance that provides you with a set amount of coverage for a specific term, and never goes down.

An important note from my experience, is that unfortunately, some licensed insurance brokers, aren't familiar with mortgage insurance products (as they don't normally sell it), so they do seem to have some old misconceptions. In some cases these preconceived ideas are true, and in some they're false. Here's a couple examples I come across on a regular basis:

• Mortgage insurance is 'post underwritten'. I hear this all the time from insurance brokers as a reason for their clients to not buy it. What does it mean? It means your risk is not assessed beforehand, so the insurance company has the option if you pass away, to say, "Oh, well if you would have told us you had cancer, we wouldn't have insured you." In which case they will return the premiums you've paid, but not pay out the benefit of the policy. To my understanding, this is true with some insurance policies. But this is about the company, and not mortgage insurance specifically. Many insurance policy's are done this way, and many aren't. The mortgage insurance offered by my company (TMG The Mortgage Group) specifically, is not post underwritten (so your risk is assessed up front and you're covered or not covered from the beginning). It's important to know whether or not your coverage is pre or post underwritten.
• "If you change lenders you have to redo your mortgage insurance and your premiums increase because you're older, but the benefit amount has gone down." This I hear a lot as well. This is true if you purchase lender mortgage insurance. If your coverage is through your lender, and you switch lenders, you need new coverage. However, not all mortgage insurance policies are through the lender. If you purchase on through your mortgage broker, it's likely transferable if you change lenders, so your payment wouldn't increase as your current policy would stay in place.
• "It's expensive!" This is something I hear from time to time. Mortgage insurance, like any insurance, can be expensive, or can be inexpensive. It's important to compare your quote with the quote of an insurance broker, as sometimes it is expensive and sometimes it's a great option. It depends on the company you're working with, the type of coverage, and your personal health situation.

I heard a statistic a while ago that over 50% of people when signing up for a mortgage, if offered, will accept the mortgage life insurance their lender offers. While I think it is important to protect yourself from the unthinkable happening, I think (like with anything else), people should be educated on what they're signing up for. It's so important to speak to people who specialize in the area you're looking for and really know your options. I refer my clients to Cheryl McLean of Sunlife in Port Alberni as she can compare the mortgage insurance quote I provide, with her options for term or permanent insurance. All have their benefits, and all have their drawbacks., but if you take the time to compare, and learn about the products, you can make an educated decision as to what's best for you.

-Sharie Marie Francoeur, Mortgage Professional with TMG The Mortgage Group Canada Inc. 2507300239 sharie@mortgagegrp.com