The benefits of going with a Term Life Insurance policy far outweigh the risks associated with Mortgage Protection.
Canadians may choose Mortgage Protection simply because they can apply for it at the same time as they get their mortgage and they only need to answer a few basic health questions. But what most clients don’t realize, is that Mortgage Protection may not pay out, it’s often more expensive and the death benefit decreases over time.
Here are several reasons you should take the time to put Life Insurance in place to protect your loved one.
The Benefits of Life Insurance versus Mortgage Protection
Your family gets to decide how the death benefit is spent
Mortgage Protection names the lender as the beneficiary of the policy. So your family will have the mortgage balance eliminated, but they won’t have any money to help with funeral or living expenses. When you purchase Life Insurance, you can name anyone you choose as your beneficiary and they can decide what the best use of the money is at that time.
You can keep your Life Insurance coverage even if you move or refinance
Mortgage Protection is often not portable from one mortgage to another, so you may have to re-qualify for coverage at each mortgage renewal. You may also face higher premiums as you will be older at each renewal or you may not qualify if your health status has changed negatively. Term Life Insurance is fully portable as it’s linked to you and not the debt.
Rates and coverage are fully guaranteed once they are in place
Generally the price of Term Life Insurance is less expensive than Mortgage Protection. The difference tends to get larger the older you are. So it is well worth exploring the cost of Term Life Insurance if you need protection. I often find clients are blown away when they see how much they have been overpaying for a product that they were sold by their lender.
Term Life Insurance rates are also contractually guaranteed. When your policy is put in force, you will know exactly how much you will have to pay at each stage of the contract. Whereas Mortgage Protection rates with some lenders can be increased or cancelled on a group basis.
Additional Savings by combining your Insurance needs
Many Canadians need additional life insurance protection to cover other loans, lines of credit, family living expenses, and funeral costs. They can often achieve premium savings by combining those needs into one policy. Lenders protection will only cover the mortgage balance. The lender will also offer you a similar protection plan for your Line of Credit and Credit Card but there is no savings for having multiple protection plans.
The amount of Life Insurance coverage stays the same
Mortgage Protection coverage automatically decreases as the mortgage is paid off but the cost of the coverage stays the same. So if you are motivated and pay down your mortgage aggressively, the declining death benefit becomes an even worse deal. With Life Insurance the coverage stays the same unless the client decreases it, and any decrease will also decrease the premium cost.
Your death claim will not be denied!
The number one reason to avoid Mortgage protection is that the underwriting – to see if you are a good risk – is done at time of death. So there is an increased risk that a client could be denied coverage years after paying premiums. Alternately, Life Insurance coverage is fully underwritten at the time of application and when the policy is issued, it cannot be revoked by the insurer (except in the case of misrepresentation or fraud). So you will have the peace of mind knowing that your protection is in place for your family.
Don’t leave your life insurance needs to chance. Take the time to secure fully underwritten Life Insurance from a professional Insurance Broker. Not only will it potentially save you money, you can rest assured your family will have the protection they need, if something should happen to you.