Seven Caveats with Bank-Owned Mortgage Insurance Coverage

Posted on June 16, 2012 and updated June 16, 2012 in Insurance Types, Life Insurance Canada News, Mortgage Insurance 2 min read

Bank-owned mortgage life insurance policies offer several hidden pitfalls. The following seven are just the ones we could think of off the top of our heads:

1. The insured is not the policy owner. The bank is the policy owner.

2. The death benefit is payable to the bank, not to the insured’s beneficiary.

3. The death benefit decreases as the insured’s mortgage decreases. Individual life insurance coverage can remain level, or even increase over time, allowing the beneficiary to protect more than just the insured’s mortgage.

4. In the event of a disability, benefits can stop before the loans are repaid in full. The insured’s occupation is covered only for one or two years at the most.

5. The coverage is not portable. If the insured moves or switches banks, he or she would have to reapply for a new plan. Also, if their health has changed, getting new coverage could be problematic.

6. If a claim arises, it’s up to the insured to make sure the benefits are paid.

7. The policies have no cash value. If the insured stops the coverage at any time, there is no return-of-premium feature. Many individual life insurance policies on the other hand, do have a cash value, which can provide a premium refund or be used to offset premiums if the policyholder is unable to pay for a period of time

For more details on mortgage life insurance in Canada, please contact us at 1-866-899-4849, or visit our Mortgage Life Insurance Quote Page.