Buying a new home is an exciting time. There is a ton of paperwork, meetings with many professionals, and some very serious looking, daunting documents to sign. It can be super overwhelming, especially if you are a first time home buyer and going through this for the first time. Banks like to take advantage of this whirlwind moment and tie mortgage insurance into your mortgage agreement. Not only that, but they make it seem like the most reckless decision when you "opt-out" of this important coverage. Don't get me wrong, you definitely need to insure your mortgage, there are just better ways, which more people need to be aware and take advantage of.
What the bank doesn't tell you is that you are far better off talking to your independent insurance advisor(*waves*) to cover your mortgage with a term insurance policy and here's why:
You are going to be paying a premium regardless if it is through a bank or on a term policy owned by you. If you opt in for the mortgage insurance, everyone pays the same premium. You don't get rated better because you are a non smoker, hit the gym religiously, or stay on that diet grind; everyone is looked at the same. With a term life insurance policy your premiums will be rated based on age, health, activities and pre-existing conditions. Even if you are someone who is a chain smoker cooking up a pound of bacon everyday and drinking the grease you still aren't getting the best rate. In fact, you may be paying premiums for nothing(see next point).
This is scary. I'm not talking horror movie scary. I'm talking mess up your loved ones lives and threaten the legacy you want to leave behind scary. When you apply for a term life insurance policy with your advisor, your application is underwritten, meaning they take into account your age, health, and activities to determine if you qualify for the coverage before the policy is issued. Once the policy is issued, and kept in force by you making sure to pay your premiums, the death benefit is guaranteed to pay out. Here's the scary part. Banks use a method called "post-claim underwriting", meaning they do not do any of the ground work until after a death claim is made. This means that they don't determine whether you qualify for the coverage(that you have been paying into for years) until your death. They then may decide that you did not qualify for the coverage and will not pay out a death benefit. Yes this does happen, yes these policies continue to be issued everyday, and yes many people are not aware of it.
When you purchase a term insurance policy your death benefit is a fixed amount. Even as your mortgage goes down, your death benefit remains the same. This leaves your loved ones more money to do whatever they want with. With the bank, your benefit declines as your mortgage declines. And get this, you are still paying the same premium that you did when your mortgage was at its highest point, when it could be hundreds of thousands of dollars less.
This one is simple and clear cut. When you have mortgage insurance through the bank, the beneficiary(the person that receives the death benefit) is the bank. When you have a personal term life insurance policy, the beneficiary is whoever you decide you want it to be. You(or in this instance your beneficiary) will be able to do whatever they want with the money. If your beneficiary is your spouse, they may not need to pay off the mortgage. They can use the benefit to help with the monthly payments and invest the rest. Or they may go on a month long shopping binge. The fact is, when the beneficiary is your loved ones, it leaves them in a better financial position.
Mortgage insurance is tied to your mortgage. If you move to a different home or decide it is time to switch banks, you will need to get another policy. If you protect your mortgage with a term life insurance policy from your independent advisor, it doesn't matter where you move or who your mortgage is through, your policy continues to cover you.
When you meet with an independent advisor, they will complete a full needs analysis to determine your insurance needs based on many different facets of your life. If you already have insurance through work, or someone had bought a policy on your life when you were a child and passed it on to you, then you may not need the big policy to cover your mortgage. Let us help you discover what you actually need rather than just "adding it in" to your mortgage.
With a term life insurance policy you can cover off all your insurance needs(mortgage, income replacement if you die, child care costs, future education costs, and final expenses) into one policy. We look at the holistic view of your insurance life and can help you discover a need you may not even be aware of, helping you ensure that your loved ones will be left in the best financial position possible in the hardest period of their life.
The bank is only worried about covering the money you owe them. We are worried about making sure you are fully covered and enabling you to have piece of mind that your loved ones will be in the best position to succeed if you are taken away from them. When a bank gives you a quote for insurance, they are accessing one market - their own. When you get a quote from your independent advisor we will reach out to multiple companies to not only find the best price but also the best coverage for your unique situation.
Finally, remember the bigger picture includes more than just an untimely death. Make sure to consider disability insurance and critical illness insurance in case you become unable to pay your mortgage due to serious illness or injury. Most employers do offer some sort of coverage for this, but always make sure it's sufficient for your needs.
If you have any questions about this or any other life insurance, critical illness or disability insurance please connect with our advisor through email, facebook, or any of the channels below. If this opened your eyes and you are ready to ditch your bank on their mortgage insurance, start here and get a quote.