If there is one thing that I have a real “bee in my bonnet” about, it’s this!

Canadian banks (and other mortgage lenders) tacking on the sale of Mortgage insurance when you get a mortgage from them.  Of course this isnt just for mortgages, they do this will all types of loans.  They will sell you insurance on any and all loans.

They make it so simple, and they are great at selling you on the reasons why you need the insurance.  One little check box and a signature on the credit/mortgage application and BANG! you’ve just bought one of the worst forms of insurance!  As far as I’m concerned, a complete waste of money.  Even worst then the wasting of money… The false sense of security you get thinking your family will be taken care of if something happens to you, when in fact odds are they will get screwed!

I truly believe having insurance to cover your debts is essential if you have any family or dependents.

Family/Dependents + Debts = Need for Insurance!

Of course anyone who knows me, knows I work in the insurance industry and compete against the banks.  So why believe me? Don’t! Watch this CBC Marketplace documentary about banks and the insurance they sell.

CBC Marketplace has the video and accompanying story here

As Erica Johnson reports, the bank staffers selling mortgage insurance are unlicenced and rarely trained to explain the details and legalities of those insurance products. The result is people who pay premiums and think they are covered, only to realize later that they are not.

The semi-technical explanation of what happens is this: Let’s compare the process between real life insurance and mortgage insurance.

When you go to get real life insurance, you sit down fill in a long application that asks you many personal and intimate questions about your life.  Often you have to go thru some form of medical.  Anything from, pee in a cup, all the way to full on dissection (or at least it feels that way)!

After the application and medical and the insurance company talking to your doctor and a bunch of other behind the scenes stuff (mostly math, yuk 😛 ), the process known as ‘Underwriting’, the insurance company will come to you and say “Here’s a life insurance policy! Sign here, and pay this premium.”. Or they say “Sorry you’re un-insurable, have a nice life. (tho according to our calculations, it will be short)”. (There is a middle ground between insurable and un-insurable, but too techie and boring to explain here)

Assuming you are insurable, you pay your premiums, and did not lie on your application (You’d be surprised at how many people do, or try)…  You’re insured! IF you die, they pay, that simple.

Now mortgage insurance… Check a box, sign and date, maybe fill in a few yes or no health questions… and your insured! Kinda.

Almost always there is no underwriting done when you apply for the insurance.  Instead they do what’s called Post Claim Underwriting. Meaning they dont really decide if you qualify until AFTER a claim is made.  That’s good time to find out you cant get insurance!

On top of that there are numerous other benefits to having a individual life insurance policy vs mortgage insurance.  See the CBC Marketplace comparison table below:

CREDIT MORTGAGE INSURANCE INDIVIDUAL LIFE INSURANCE
Post-Claim Underwriting: Unlike individual life insurance, credit insurance sold through the bank is usually not underwritten until a claim is made. This means the insurance company may determine you are not eligible for a payout even though you have been paying premiums. For instance, a claim may be denied because an investigation of your medical records indicates you once had high blood pressure or high cholesterol that you did not disclose. Underwriting: When you apply for individual insurance through a licensed insurance broker your medical history will be examined before a policy is issued and you start paying premiums. The insurance broker will ask detailed questions and may arrange for a nurse to conduct a physical. You will know upfront whether or not you are covered.
Standard premiums: The mortgage insurance policy sold at the bank is a one size fits all policy. This means everyone who qualifies is considered to be of equal risk. The premiums you pay on mortgage insurance are a fixed amount based on your age and the amount of your mortgage. There is no discount for non-smokers or for women. The premium does not reduce as the mortgage is paid down. Individual premiums: With an individual life insurance policy, the premiums you pay are based on your individual risk. Your health history and exam will help to determine how high or low your premiums are. Non-smokers and women pay a lower premium. The face amount of the coverage remains level.
Decreasing payout: The Mortgage insurance sold at the bank covers a decreasing amount. While your premiums remain the same the amount left on your mortgage decreases. Mortgage insurance will only pay off the balance of your mortgage when you make a claim. Fixed payout: When you purchase an individual insurance policy you pay premiums for a pre-determined amount of coverage. Therefore, if you pay premiums for $100,000 of coverage your beneficiary will receive $100,000.
The bank gets the payout: Mortgage insurance is designed to pay off the bank if anything happens to you. Therefore the insurance payout will be made directly to the bank. You choose who gets the payout:With an individual policy you are free to choose the beneficiary or beneficiaries. If something happens to you, it is up to your beneficiaries to decide what to do with the insurance proceeds.


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