Protect YOU not your Lender
The days are getting longer, winter is coming to an end and the spring real estate market is starting to
grow like the flowers this time of year.
While purchasing a home is one of your biggest decisions you will make, many individuals overlook one
critical area when they go through this process of purchasing their home.
That area is mortgage life/critical illness/disability insurance.
Throughout this blog, we will refer to mortgage life/critical illness/disability insurance as ‘mortgage
insurance’. We will refer to individual life/critical illness/disability insurance as ‘individual insurance’
unless specifically mentioned.
To begin, picture this scenario. Perhaps this has been you before?
You and your agent have found the perfect home. You go through the process of negotiating, and now
you go through the process of financing with your mortgage broker. You also have to book with your
home inspector, and make sure everything clears with your lawyer before closing day.
Yet during the process of financing, there comes a point where you have to accept or reject mortgage
insurance on your mortgage. While many may find it another task to deal with, we accept it from the
lender without seeking other options. We are at a point where lots of energy was used in
finding/negotiating the right price, negotiating the right rate with terms and conditions – and now this.
As a result, we don’t follow through this area and accept the mortgage insurance.
But do you know what you have accepted? Do you have other options available to you?
Here is some information in helping you make an informed decision, so when you are at this point – you
may want to seek out other options.
Individual insurance protects you and your family – not your lender
Individual insurance protects you and your family. In individual life insurance, if you appoint a
beneficiary it goes to your loved ones. You are in control in deciding who gets the payout. In individual
disability and critical illness, it goes to you and your family. Together, you decide on how to spend the
money.
With mortgage insurance, the lender’s risk is protected. Not you or your family.
As such, many individuals are not aware of this. Does one feel comfortable in knowing that the lender is
protected – and not you or your loved ones?
My experience has shown that when it comes to these areas, there are many other expenses that need
to be protected outside of the mortgage. For life insurance some of it includes one’s lost income,
support for the family and cost’s associated with burial. For disability and critical illness it includes day to
day living expenses – or cash flow in maintaining/sustaining your home. It’s not just the mortgage that is
due – it’s the other items as well. Individual insurance protects the other items listed, on top of your
mortgage – whereas mortgage insurance protects the lender.
Individual insurance is flexible
We can probably all agree, that in life we prefer to have flexibility over things than not having flexibility.
With mortgage insurance, the price is what we see and where we fit within their tables. We are not
assessed for our good health and lifestyle.
In individual insurance, we are assessed based off our health and lifestyle. In some individual term life
products, your rates could decrease in helping you save money.
The flexibility does not stop at this. When a mortgage comes up for renewal, if you elect to switch
lenders your mortgage insurance coverage is no longer applicable with your prior lender. You than have
to go through the process again, at the rates based of your age (and principle amount) with your new
lender. With individual insurance, you just take it with you when you switch.
In mortgage insurance the lender owns the contract. As a result, they are in control. In individual
insurance – you own the contract.
From ownership of the contract, to premium assessment and the flexibility in the event you switch –
individual insurance offers more of this than mortgage insurance does.
Mortgage balance decreases – how does it affect your life insurance coverage?
Most people are shocked to hear and learn about – particularly in life insurance that your ‘payment’ to
the lender decreases when the mortgage is being paid off. Yet your premiums stay the same. This goes
back to ‘protecting the lender, not you and your family’.
Whereas individual life insurance balance does not decrease. It stays the same and goes to your
beneficiary. This could be used to help support lost income, day to day expenses what have you. It could
also be used to pay off your mortgage. Your loved ones are in control as to what to do with the
proceeds. Not the lender.
The moment you have been waiting for – you are now mortgage free.
Congratulations!
One of the ultimate financial goals for individuals is to become mortgage free. You have worked hard, in
focusing on paying off the mortgage – and now the time has come. The lender is now separated from
your property, and you maintain complete ownership (no line of credit attached to the property). Now
what about the mortgage insurance? What happens to this? Once the lender is clear from the property
– there is no need for them to be protected. As such, your mortgage insurance is gone.
Yet, your insurance needs does not stop when your mortgage pays off. For as long as you continue to
work, build your assets, have a growing family, wanting to leave a legacy – individual insurance fills in
the gap that mortgage insurance cannot.
Conclusion
As you can see, there is more to insurance selection than just accepting what is placed in front of you.
Insurance is for the day to day protection in life – as well as the long term for you and your family.
On a side note, no lender can advise you that you have to take their mortgage insurance or you are
declined the mortgage. That is tied selling and against the law. They can state you must have mortgage
insurance for the mortgage – but you can choose who you want, not what they want.
It really does pay off to seek out your options, and to place them all on the table before making an
informed decision.
To learn more about individual insurance, or to have a complimentary conversation or review in this
area – don’t hesitate to reach out with the contact information below.
Have a great March and looking forward to the next blog in April!
This BLOG is written by Ken Krakar from Protect Your Finances. As an independent, preferred broker – I
help protect my client’s financial health and wealth. Follow me on Twitter @protectfinances . Like our
page on Facebook at “Protect Your Finances”. Connect with me on LinkedIn at Ken Krakar CHS. Please e-
mail me too if you have any questions about this, or any other matter as it relates to your personal
finances. I can be reached at [email protected] .
E&OE. This blog is for information purposes only, and after consulting with a professional will you be
able to determine how it affects your unique situation.