Sounds great just lying there on paper, doesn’t it?
The underlying concept of mortgage insurance is that if you die or are incapacitated, mortgage insurance will pay off the rest of your mortgage. But be careful: Mortgage Insurance is the most dangerous financial product out there.
Mortgage insurance is the one financial product which declines in value as you continue to pay. Therefore each year you are getting less and less value for your premium.
Why Math is Important
Renting vs. Owning
Let’s start with your house. When you take a mortgage out on your house, it’s a very bad deal to start with. You are just paying interest on the value of the house and in most cases the interest far exceeds the cost of renting the same property.
Here’s an example based on a $500,000 20 year mortgage at 6% on a $600,000 house. We’ll assume rent inflation of 4%/year:
Year 2010: Mortgage payment $3560/month. Rent: $2500.
You are leaving over $1000 in your pocket per month in ready money. That’s a lot of restaurants and vacations twelve months a year.
But let’s take it ten years later:
Year 2020: Mortgage payment $3560/month. Rental $3301.
And you have no equity in the house.
Year 2030: Mortgage payment $0. Rent: $4501.
So in most cases, buying a house is a great deal long term, even with the high mortgage payments. How does mortgage insurance compare with home ownership as an investment?
Mortgage Insurance vs. Life Insurance
On that $500,000—as a 40 year old—you would be paying about $100/month for mortgage insurance (not including disability). For 20-year level term life insurance, you would pay about $60-$65 for that much coverage (non-smoker).
Let’s go through the years again:
Year 2010: Mortgage value $500,000. Mortgage insurance: $90/month.
Year 2010: Life Insurance value $500,000. Life insurance: $60/month.
Year 2020: Mortgage value $321,000. Mortgage insurance: $90/month.
Year 2020: Life Insurance value $500,000. Life insurance: $60/month.
Year 2029: Mortgage value $41,391. Mortgage insurance: $90/month.
Year 2029: Life Insurance value $500,000. Life insurance: $60/month.
So with term life insurance you pay two-thirds as much for up to 10x as much coverage (depending on how far down the road you are).
How does that friendly banker look now? May as well paint fangs on him or her. But don’t be mad. In most cases, even mid-level loan officers have only a vague idea of how badly they are working to rip you off. What most of them know very well is that they get a nice bonus based on how many of these mortgage insurance contracts they close.
Mortgage Life vs Individual Life
The Mechanics of Mortgage Insurance
So if mortgage insurance were actually sold in a fair way, it would just be a bad deal. But mortgage insurance is sold without qualifying the purchaser. After you claim, the insurance company steps in to compensate you, so that you can compensate the bank. That is, if you are lucky. Often, the bank does not really take good care to sign you up properly and the insurer may back out of the deal claiming that you (the client) have lied on the initial application form.
But wait, you say, the mortgage insurance was sold to me by my bank. Sold – yes, but backed – no. Mortgage insurance is an external financial product. Your bank will wash its hands of the affair immediately. They don’t want to know anything about it.
Don’t believe us? Think we’re just scaremongering to sell you life insurance? Think again. The CBC covered the mortgage insurance scam indepth in their fabulous Marketplace Consumer Reports program. It might be funny, but it’s not. Lives are ruined.
Trailer for CBC Marketplace In Denial: Investigating Mortgage Life Insurance
What’s hard to believe is that over 50,000 Canadians are living with mortgage insurance underwritten after death. That’s 50,000 families living at risk of ending up homeless! Furthermore mortgage insurance through your bank is owned by your bank. The bank is beneficiary and the coverage is not portable. Meaning that if you sell your home or switch banks your coverage ends without value. If your health as subsequently changed obtaining new coverage may be expensive or unavailable.
Mortgage insurance is not required and must not be a prerequisite for qualifying for a mortgage.
That’s right, if a bank tried to force you to buy mortgage insurance (or discriminated against you if you did not buy it), your bank would be engaging in the illegal conduct of tied selling prevention policy.)
Insurance experts find some products more useful than others. For example: term life insurance, disability insurance, and critical illness insurance can change your life if you need the policy to pay out. However, mortgage insurance, accidental death insurance, and some other products fall into a category of "less useful products." This is because a carefully constructed life insurance plan can eliminate the need for some policies. For example, let’s take a look at mortgage ...
At the end of 2015, the total Canadian mortgage debt stood at $1,262 billion. That puts Canada's GDP well above other G8 countries. The vast majority of Canadians are typically responsible borrowers with a strong financial strategy.
With job losses and huge increases in house prices, some people find they have overextended themselves. However, it is important to put this into the proper perspective. More than seventy percent of Canadian household debt is the mortgage on the family home. ...
You’ve probably heard about how we’re dealing with record debt levels in Canada, but how does this impact life insurance companies and you as an individual or family?
To help answer this question, we’ll take a look at how the debt level is calculated, how it affects Canadians, and how it impacts life insurance companies.
How Debt Level is Calculated
The two factors used in the debt level equation are household credit and disposable income.
• Household credit: Credit such as ...
Contrary to what certain insurance brokers will try to get you to believe, buying an insurance policy for every occasion is not always a good idea. As everyone has a different need, it’s important to do some research and understand what the right type of insurance is for you.
Taking out an insurance policy you likely won’t ever need is a waste of money and you would be much better off if you decided to invest that money elsewhere instead.
There are also several types of insurance ...
If you're an avid reader of the LSM Insurance blog, you know we're not fans of Mortgage Insurance and neither, it turns out, is the Toronto Star's personal finance columnist, Ellen Roseman.
In a recent article titled "Mortgage Insurance Policies May Not Cover Claims," she highlighted the danger of post-claim underwriting. This is when the policyholder has filled out their application and has been diligently paying their monthly premiums, but when they die suddenly, their family discovers ...
These days, it seems like debt is the norm. Instead of it being the "elephant in the room," it's all everyone talks about ─ the bragging rights one obtains from taking out a loan to buy a luxury car, or funding a vacation trip entirely on credit.
According to a survey by Manulife Bank of Canada, homeowners are more comfortable with both holding and talking about their debt than their parents were.
"Recently I've noticed people are happy to talk about their debt as if it's an achievement, ...
Ellen Roseman gives us the lowdown
on five life insurance loopholes.
Life insurance is a difficult concept to wrap one's head around. But even when you think you have more than a basic understanding, insurance contracts are embedded with many loopholes and restrictions that often trip up consumers.
As the personal finance columnist for the Toronto Star, Ellen Roseman has written about every one of them, so we invited her to take us through them all and share her candid advice on how to ...
Life insurance is always a tough sell: an invisible product that the policyholder will never actually benefit from directly, and yet they still have to pay for it every month.
But if you don't have it, you won't be able to make sure your family maintains the lifestyle they've become accustomed to or replace your income when you pass away.
Although, just because you have life insurance, doesn't mean it's necessarily working for you in the right way. Since life insurance is such a complex ...
We've investigated and advised against mortgage insurance for years here at LSM Insurance, and it mostly comes down to one dastardly component of how it works — post-claim underwriting.
Mortgage insurance is typically sold by banks when you get your mortgage as a means to pay off your mortgage when you pass away. However, the approval for the policy is done after you've already been paying the premiums, and often, people are denied coverage at the time they need it because the ...
Christine McCarthy was victimized by an abusive husband for years, and now, thanks to his choice to commit suicide, she's being victimized all over again by her insurance company.
Her husband's name was Charlie* and he was an abusive alcoholic. The night before his death in April 2003, he had already been arrested for assault on Christine and was out on bail with a restraining order not to come within 30 feet of Christine or her children.
"The night he was arrested for the second or the ...
Mortgage insurance is not
actually a good deal.
Many insurance brokers have explained the perils of mortgage life insurance to the clients.
Yet Canadians continue to buy these policies. Why are these policies such a bad deal? Well, there are numerous reasons why these profit pack policies are not a good value for Canadians.
1. The coverage is not portable:If the insured switches banks, moves, or sells their home, they will have to take out another policy.This could be a ...
People over 50 are most
at risk for bankruptcy.
According to a study conducted bybankruptcy trustees Hoyes, Michalos & Associates, those Canadians age 50 to 59 are the most at risk for bankruptcy.Their debts — including credit cards, personal loans and other forms not backed by assets — exceeded $84,000.
However, with rising debt loads, many Canadians over 50 still require substantial life insurance. Many of these people get trapped into taking mortgage ...
According to the Canadian Life and Health Insurance Association, 22 per cent of the people who request a search for lost life insurance policies find one, and in about 25 per cent of those cases, the policies had actually been surrendered for their cash value or simply lapsed. However, the rest revealed unclaimed benefit amounts ranging from $3,500 to $210,000.
The search is free to undertake, but there is a time limit. You only have a window of three months to two years following the ...
Mortgage life insurance is insurance that can be purchase from a lending institution.
The insurance pays your mortgage in the event that you pass away. Mortgage life insurance is very different from individual life insurance because the coverage declines each year or declines as the mortgage declines. Some additional differences between mortgage life insurance versus individual life insurance are the following:
1. The bank is the beneficiary. On an individual life insurance policy, the ...
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 ...
IA Excellence offers a mortgage insurance solution through its Universal Loan Insurance Program. The contract is independent from creditors and the policyholder owns the coverage.
The money can be used to cover all insurance loans. Unlike bank-owned mortgage insurance, the policy can be transferred from loan to loan. The coverage is suitable for mortgages, lines of credit, car leases, truck, boat, or motorcycle loans, RRSP or other investment loans.
Desjardins Financial Servicesoffers a unique, multi-coverage discount option on their term insurance lineup.
Desjardins offers Term 10, Term 20, and Term 30 policies. All coverages are guaranteed renewable and convertible as well as available on a preferred rate basis for individuals who are in very good health and have a very good family health history.
Bingham Group Services Corp. (BGS) is Canada's leading third-party administrator in the business of creating marketing and administering group creditor insurance products. BGS products are underwritten by Forester's Life Insurance Company, which is a Canadian incorporated life insurance company providing financial security to Canadians.
Foresters originated in 1898 as the insurance department of the High Court of the Ancient Order of Foresters. They have been assigned an A minus ...
So something has happened to you or your family, but thank goodness, you have insurance, and now it's time to file a claim. But how is that done exactly? What do you need to do to prepare?Don't stress! We'll show you...
Life Insurance Policies
Filling out paperwork is the last thing you want to do when you lose a loved one who has named you his or her life insurance beneficiary, which is why we at LSM Insurance try to make the paperwork as painless as possible. Still, here are the ...
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.
Syed Raza talked to us
about Mortgage insurance.
When most Canadians sign up for a mortgage, one of the last things they're thinking about is their mortgage insurance. However, what might seem like a small decision can result in paying thousands, if not tens of thousands, of extra premium dollars over the life of your mortgage.
LSM insurance broker Syed Raza sat down with us to review four reasons why you should consider individual life insurance over mortgage insurance from a lending ...
Mortgage Life Insurance is available
from Bank of Montreal.
Unity Life of Canada joined the Foresters family in April 2008 and as of Jan 23 2012 changed their name to Foresters Life Insurance Company.Bank of Montreal Mortgage Life Insurance is available directly through the insured's lender.
The policies cover the outstanding mortgage balance at the time of death, up to a maximum of $600,000. A maximum of two people can be covered under the policy and the policies are underwritten ...
Bank of Montreal offers a mortgage, life, and disability insurance policy, which is available through the insured's mortgage lender. The insured has the option of choosing mortgage life insurance or mortgage, life, and disability insurance coverage. Mortgage disability insurance cannot be purchased on its own.
The premiums on the mortgage, life, and disability insurance policy are added to the insured's monthly mortgage payment. Individual life insurance policies purchased through BMO ...
can be a trap
Creditor insurance is one of the most profitable products in a bank's line-up. Often sold using high-pressure tactics, many borrowers are backed into a corner and feel like they have to make the purchase or else lose their existing loan.What many don't know is this form of coercive selling is illegal. A company is not allowed to provide a product or service on the condition that their customer purchase an additional product from the same, or a ...
He asked me all of the questions that were pertinent to assessing my risk then developed a plan to protect my best interests.
He was able to put together a series of quotes from different companies, including RBC, Manulife, BMO and Canada Life to name a few, showing me the differences in price and product offering and discussed the value of each company.
Thank you Andrew for sharing your time to make sure that what I was moving forward with I thoroughly understood and fit my budget.