Decline the Bank Mortgage Insurance

“Would you like fries (mortgage insurance) with that (mortgage)?”
– A McDonalds sales technique

Written by Steve Nyvik, BBA, MBA ,CIM, CFP, R.F.P.
Financial Planner and Portfolio Manager, Lycos Asset Management Inc.

When you go into the Bank to finalize your mortgage, a bank employee will most likely as you to consider purchasing mortgage insurance protection.  You may be told – “it will pay your mortgage if you die; just a few medical questions; it’s inexpensive”.  While that Bank person may have had the best of intentions, he or she probably lacked the training needed to make you aware of important contractual details and how Bank coverage compares with other insurance protection options.

Here are some important things you should know about most mortgage insurance policies:

Bank, Credit Union or Trust Co. (“Bank”) Mortgage Insurance Characteristics

1. Policy ownership

Bank mortgage insurance is a Group Policy that is owned by the bank, not by you.  As such,the Bank can, in certain circumstances:

(i) cancel your coverage without your consent.

If your health worsens but then on mortgage renewal or in the event your mortgage needs change, you then may have to re-qualify for insurance (you may then be declined for insurance).  What if your financial situation worsens (let’s say you fall behind in payments) but still need insurance?

(ii) increase your premium – i.e. it is not guaranteed to be fixed for your lifetime

(iii) Coverage may terminate at age 70 even if you still have an insurance need.
(Most Banks restrict mortgage insurance to clients age 65 or younger, with coverage terminating at age 70).

2. Policy cost

(i) The cost is based on the entire group of the Bank’s insured mortgages. Generally, no distinction is made between smokers and non-smokers.  Non-smokers and healthy individuals are penalized with higher premiums!

(ii) The Bank is not providing you mortgage insurance policy quotes from several competitors.  As such, Bank insurance premiums tends to be less competitive.

3. Qualification for Coverage

(i) Policy is underwritten after death! Generally, at time of your death, your qualification for insurance is then reviewed and your application scrutinized.  As such there is no guarantee of mortgage repayment.

(ii) You may be required to re-qualify upon renewal of your mortgage.

(iii) Mortgage insurance is only in effect for as long as your current mortgage contract.  If you renegotiate your mortgage (maybe you want to finance a large renovation) or move to a new lender, you’ll likely lose your protection.  Hopefully you are healthy at that time.  You may also be subject to the current rate charged by the new Bank which likely may be substantially higher.

Personal Term Life Insurance

1. Policy ownership

You own the policy:

(i) You have freedom by not being tied to your lender – you can move your mortgage whenever and wherever you can get a better rate without jeopardizing your coverage.

(ii) Your insurance premiums may be guaranteed not to change over the life of your policy

(iii) Your policy may be non-cancellable

(iv) You may be able to modify your coverage to fit your changing circumstances – examples:

  • You have children and want additional monies available for them in the event of your death
  • If you become diagnosed with a terminal illness, coverage can be maintained for life where the coverage can be fixed and not decline with a declining mortgage balance.

(v) You choose your beneficiary and may be able to change the beneficiaries in the future

2. Policy cost

(i) The cost is based on your individual health. If you qualify for insurance, the cost can be substantially cheaper – could be as much as 40% cheaper

  • If you are a non-smoker, you benefit compared to the bank which doesn’t distinguish between smokers and non-smokers
  • If you live a healthy lifestyle, you may benefit by getting specially reduced premium

3. Qualification for Coverage

Underwriting (qualification of insurance) is done at time of application.  Once qualified, you are not at risk of losing your insurance in the future because of a change in your health.

The Next Step

See the difference?  Tell the bank you need to think about it and come see me.  After we get you better coverage for less, you can go back to the bank and tell them NO THANK YOU!   You can reach me at: (778) 878-6643 or by email: nyvik@shaw.ca

Steve Nyvik

Steve Nyvik, BBA, MBA, CIM, CFP, R.F.P. WHAT I DO: Steve builds, from blue-chip dividend paying stocks and bonds, a tax efficient 'pension' designed to meet your needs through time without taking unnecessary risk. Financial planning advice and service are included to make sure that if ‘life happens to you’, your goals aren’t derailed in the process. Phone: (604) 288-2083 (extension 2) Toll Free: 1 (855) 855-9267 (extension 2) Email: Steve@lycosasset.com