A mortgage on a home is one of the largest debts incurred by most Canadians, and needs to be taken very seriously. Mortgage holders may want to take measures to protect their family home in the event that payments cannot be met due to death, illness, or disability.
Mortgage insurance, available up to age 64 inclusive, will ensure that the mortgage will be paid off in full (up to a certain amount) in the event of the home owner’s death. Karen Blomquist, a Calgary mortgage consultant with mortgage brokerage Mortgage Intelligence, recommends that couples have both spouses covered.
“Cost is based on the amount of the mortgage and the age of the policyholder,” she says. “A couple, with both spouses aged 22, will pay a total of $34.56 a month for a joint policy on a mortgage of $300,000. Spouses who are 40 years of age will pay $74.40 a month for a joint policy, and spouses aged 50 will pay $153.60 a month.”
The cost is added to the mortgage and comes out of the owner’s account every month. The payout limit is $500,000. “When a family is grieving,” Blomquist adds, “the last thing they need is to find out they have big payments to meet.”
But what if the homeowner suffers an illness or has an accident and cannot work? Mortgage critical illness insurance will protect the homeowner who suffers a severe illness that is covered under the policy, such as life-threatening cancers, heart attack, stroke, and kidney failure. It provides a lump-sum payment, or monthly benefits to pay the mortgage on the home, up to a certain amount — such as the $500,000 maximum offered by Mortgage Intelligence, stated in the policy.
Blomquist says: the 22-year-old couple will pay an additional $43.20 a month on top of their mortgage life insurance for critical illness coverage; the 40-year-olds will pay an extra $77.78; and the 50-year-olds will pay an extra $236.16.
Another type of coverage, mortgage disability insurance, protects homeowners who become disabled and cannot work as a result of an injury or accident incurred on the job, including mental illness. It will cover mortgage payments up to a certain amount, such the $500,000 ceiling offered by Mortgage Intelligence.
“The 22-year-old spouses will pay $20.67 a month on top of their mortgage life insurance,” Blomquist explains. “The 40-year-olds will pay an additional $26.10, and the 50-year-olds will pay an extra $39.35.”
“If you’re self-employed and have a mortgage on your home,” she asks, “how can you not have mortgage critical illness and disability coverage?”
She adds that disclosure of any underlying health conditions is important when applying for coverage. The benefit may be denied if full disclosure was not made.
But LSM Insurance recommends taking out life insurance instead of mortgage insurance.
“The mortgage is just one of the expenses a family will face if a breadwinner dies,” LSM experts say. “You should be looking at your family’s needs as a whole: funeral expenses, children’s education, and income replacement.”
Life insurance, they say, also gives a surviving spouse the option of paying off the mortgage or using the payout for other purposes: “Mortgage life insurance will only pay off the mortgage, and if the mortgage rate is a good one, keeping the mortgage may be an important feature for selling the property.”
The same advantages apply to individual critical illness and disability insurance over mortgage-specific critical illness and disability products, he adds.
Mortgage Default Insurance
Canadian homebuyers making a down payment of less than 20 per cent of the purchase price of a home are required to buy mortgage default insurance, also called mortgage loan insurance, that protects the lender in the event that the owner defaults on the mortgage.
“It’s the fastest way for a buyer, who has only been able to save for a small down payment, to purchase a home,” says Peter Vukanovich, Oakville, Ont.-based president of Genworth Financial Canada, one of a handful of lenders that offer this kind of insurance in Canada. In 2010, he says, about 40 per cent of all new mortgages required mortgage loan insurance.
“It gives people the opportunity to get into the housing market sooner,” Blomquist explains, “which will benefit them if home prices go up.”
The premium on a $300,000 home with 95 per cent financing would be $8,407.50, she says, and $4,972.50 with 85 per cent financing. This is a one-time fee that is added onto and amortized with the mortgage.
By Rosemary McCracken, For Postmedia News March 30, 2011
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