Jonathan Mercier

By Jonathan Mercier

May 6, 2020


4 reasons to choose individual insurance for your mortgage

Article revised on 11 May 2020

The COVID-19 crisis has serious financial consequences for many workers. And what if you’re about to sign off on a new mortgage? Obviously you would want to protect your investment with mortgage insurance. But be sure to read this before accepting the loan insurance offered to you by your mortgage lender!

With mortgage insurance, the first default option is often what is suggested by the lender. After all, what could be easier than accepting the protection offered by the institution that is financing the purchase of your dream house?

The second option is to take out individual insurance with a financial security advisor. Mortgage loan insurance is temporary life insurance that can be enriched with the addition of insurance for disability, serious illness, or involuntary job loss.

And since no one is safe from being laid off during a pandemic, now is an excellent time to review the many advantages of individual insurance!


1. Take advantage of a more flexible contract

The mortgage insurance offered by the lender will respond to their own demands first and foremost. The benefits paid—following a death, disability, or serious illness—are automatically applied to the repayment of the mortgage.

On the other hand, individual insurance responds to the coverage needs of the policy holder. In case of death, their designated beneficiaries receive the benefits outlined in the contract. In the case of disability or serious illness, the policy may also pay out benefits. This is the first example of its flexibility!

And since you are the owner of individual insurance, and the contract is independent of your mortgage, you will still be insured even if you decide to change financial institutions. You therefore have the possibility of shopping around for a more advantageous interest rate amongst other lenders.

The fact that you are the owner of this protection also gives you the possibility of changing the length of the policy period within the first five years of the contract, without proof of insurability, or to transform it into permanent life insurance.


2. Optimize your estate planning

Since mortgage loan insurance is obtained through a financial security advisor, the latter is obliged to analyze your financial needs. This could be an ideal opportunity to finalize your estate planning. “This step doesn’t exist when you sign a contract for loan insurance.

Under a single individual insurance policy, it is therefore possible to cover all of your insurance needs. The benefit paid to the estate may therefore be used for purposes other than repaying the mortgage, such as the payment of funeral costs or a line of credit, or even the provision of a legacy to grandchildren.


3. Do not pay for diminishing protection

Loan insurance from the financial institution covers the mortgage balance at the time of death, while individual insurance pays instead the sum stipulated in the policy. In the first case the amount insured diminishes as you make payments towards the mortgage. This means you are therefore paying a fixed rate for a declining amount of financial protection.

The house you bought for $200,000, for which a mortgage of $100,000 still remains, will definitely become debt free when you die: The loan insurance will cover the unpaid balance. On the other hand, individual insurance would instead pay out the death benefit of $250,000 stipulated in the contract.


4. Earn significant savings

As opposed to an individual policy, the loan insurance contract vanishes the moment you change lenders. When you renew your mortgage with a competitor, the insurance premium will be higher than during the initial term. Five years have passed since the last term and your insurability isn’t guaranteed if you experience health problems.

But the biggest potential savings is to be had on a whole other level. When you choose loan insurance, some financial institutions often inflate the interest rate that you assume on the mortgage.

Instead of the 2.8% rate offered currently, an elevated rate of 3.8% will often be levied in this situation. Amortized over 25 years, this inflation will easily cost over $10,000. So take the time to meet with your financial security advisor to properly choose the product best suited to your situation.

Note: This article is intended for information purposes only and should not be construed as legal, financial, tax or other advice. The circumstances or factors may vary depending on your individual situation. Before taking action, we encourage you to consult a professional. La Capitale Civil Service Insurer or La Capitale Insurance and Financial Services shall not be held liable for any consequences arising from any decision taken based on the content presented in this article.

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