By Dawn Marchand, VP Canadian Bar Insurance Association
Your $1 million offer for a house in a great neighborhood has just been accepted. Together, both you and your partner earn a good living and have qualified for an $800,000 mortgage. But if one of you dies, an important part of the financial equation disappears.
So, before you go to the bank to sign on the dotted line, do a bit of homework and check out your options for insuring the amount of your mortgage. The bank will offer you mortgage insurance but as a member of the legal community, you have exclusive access to term life insurance through the Canadian Bar Insurance Association (CBIA).
Consider this example: for a 41-year-old male non-smoker, the bank will charge $232.00 per month* for $800,000 of mortgage insurance. CBIA term life would only cost $45.34 per month. Savings for women are even greater; for the same coverage, a 41-year-old female non-smoker will also pay the bank $232.00 per month but her CBIA term life premium is only $33.73 per month.
The significant savings is likely reason enough, but wait—there are even more reasons to at least consider term life insurance before signing on for mortgage insurance.
Ownership & Control
Unlike mortgage insurance where the bank is the policy owner, with term life insurance, you are the policy owner. When you die, mortgage insurance is paid directly to the financial institution and is used only to pay off the mortgage balance. Insurance benefits are paid directly to your designated beneficiary (i.e. spouse) and they are able to determine how best to use the funds (for example, paying the mortgage and/or covering other expenses such as education, debt or to supplement a loss of income).
Decreasing vs. Level Coverage
With mortgage insurance, the amount of overall coverage decreases with each mortgage payment made. As your mortgage reduces, your coverage goes down but your premiums do not. With a term life insurance policy, the benefit amount is guaranteed for the life of your policy. Premium rates will likely increase at regular intervals but at any point, you can choose to reduce your coverage amount and, if you do, your premiums would also be reduced.
“I like my bank, but I’ve never liked mortgage insurance, it just doesn’t make sense: the beneficiary is the bank, not your family; it’s usually more expensive than other types of insurance; the bank owns the policy and is in control; and the insurance declines with the mortgage balance. I think the only reasons people buy it are the convenience, or perhaps they feel it may affect their eligibility for the loan, but that’s impossible—you can’t be denied a mortgage because you refuse mortgage insurance.” Izhak Goldhaber, SVP Business Development and Customer Experience, CBIA
Underwriting
Typically there is very little pre-purchase underwriting required for mortgage life insurance; usually just a few simple questions. This is one of the reasons why premiums are typically higher than for term life insurance. Life insurance typically requires a comprehensive underwriting process prior to purchase. CBIA’s Term 80 product was designed to provide a positive client experience with minimal intrusiveness. The degree of underwriting required is dependent on the amount of life insurance applied for.
Portability
If you move your mortgage to another financial institution, or if you buy a new house and need a new mortgage, or if you simply renew your mortgage for a longer term, you may have to requalify for mortgage insurance coverage. You could be considered uninsurable, and would not be able to get mortgage insurance. In contrast, CBIA’s term life insurance stays intact as long as you continue to pay premiums, even if you move your mortgage or buy a new home.
So caveat emptor! Remember, mortgage insurance is typically sold by bank employees who may not be trained to explain the benefits of different insurance options. With CBIA, you receive quality advice from advisors familiar with the many product options available. Working together, you are assured of determining the coverage that is best for your specific situation.
*all rates quoted are as at January 2017 and do not include PST (where applicable).
Canadian Bar Insurance Association (CBIA) is committed to being the trusted provider of choice for insurance and financial solutions to the legal community, their families and employees in Canada. Our products and services are planned and designed to meet the needs and reflect the unique characteristics of the legal community at a cost that provides both superior value and stability. It’s all we do!
Find your local Authorized Independent Advisor at: barinsurance.com