What exactly is covered?

Mortgage Life Insurance from the banks is a “decreasing term” policy. If you die, the payout is in direct proportion to the balance of the mortgage loan. If 2/3 of your $150,000 mortgage has been paid and you die, all your beneficiary will receive is $50,000. 

On the other hand, if you had purchased a 10 or 20-Year Term Life Insurance policy and died near the end of the mortgage term, the payout would be the full face-amount of the policy – $150,000.

• Advantage: Term Life Insurance

Who receives the money if you die?

Banks will directly pay off the mortgage since they are the only beneficiary allowed. Traditional Insurers will pay to whomever you name as beneficiary. At the time of death, the beneficiary could, for example, take advantage of favorable interest rates. If mortgage rates are low and investment rates are high, the beneficiary could choose to invest the money and make the mortgage payments from the investment income.

Additionally, if there is a prepayment penalty, the beneficiary could decide to invest the money, make the usual monthly payments, and wait until the loan expires to pay off the balance in order to avoid any penalties.

• Advantage: Term Life Insurance

Underwriting and health assessment

In most cases, there is no underwriting done when you purchase coverage from the bank as long as you answer a health (screening) questionnaire. So, when is the underwriting done to see if you qualify for a claim? When you die! In other words, the only time a qualified life underwriter (the person who decides whether you qualify for a benefit) looks seriously at your application, is when there is a claim. Do you want that kind of scrutiny applied when you are not even there to defend it?

When you purchase from a traditional insurer, they are going to underwrite your application before granting you the coverage. So, when you receive the policy, it really is an “approved and underwritten” policy. As long as you have not lied on the application or otherwise committed fraud, the contract will pay the claim in accordance with the contract.

• Advantage: Term Life Insurance

Who owns the policy?

With the banks, they own and control the contract, and can virtually change anything they like (within reason, of course). With traditional insurers, you own the contract.

• Advantage: Term Life Insurance

What happens if I change banks?

If you change banks to take advantage of a better mortgage rate, you will have to take out new mortgage insurance from your new lender, most probably at a higher cost. With Term Life Insurance, the policy is yours and will remains in force even if you change lending institutions.

• Advantage: Term Life Insurance

Conversion privileges

Traditional insurers can offer clients the unique advantage of converting their contract to permanent life insurance of the same type of protection (individual or joint), at any time before age 65 and without evidence of insurability. This feature is not available at banks with their regular mortgage insurance products.

• Advantage: Term Life Insurance