Mortgage Insurance: What Are Your Options?
Article revised on 9 March 2020
So you finally found your dream home. Now you’d like to protect your investment with mortgage insurance. Did you know two options are available to you?
Your financial institution will propose its own mortgage insurance, which will sound tempting. However, you’re not obligated to purchase the product offered by your bank. You can choose to protect your loan with coverage provided by another financial institution or a life insurance company. It may not be convenient, one-stop shopping, but the benefits are definitely worth it.
How do you choose the mortgage insurance product that is right for you?
Here are a few guidelines to help you make an enlightened choice between the two product types.
|Life insurance company||Loan insurance from financial institutions|
|Type of plan||Individual||Group|
|Disability income benefit offered||✔||✔|
|Critical illness insurance offered||✔||✔|
|Guaranteed rate for the contract term||✔||❌|
|Fixed insured amount in the event of death, critical illness or disability||✔||❌|
|Option to convert your term life insurance to permanent insurance||✔||❌|
|Option to designate the beneficiary of your choice||✔||❌|
|Freedom to use the money as you see fit||✔||❌|
|Option to remain insured if you change financial institutions||✔||❌|
For starters, the mortgage insurance offered by your financial institution applies strictly to your mortgage loan. The insured amount usually decreases over time as you pay off your loan. For example, if you still have $100,000 left to pay on your loan, you will be insured for $100,000, even if the initial amount was $250,000. In the event of disability, the insurance would be used to make payments on your mortgage. In the event of death, it would be used to settle the unpaid amount of your mortgage.
The products offered by insurance companies protect your credit differently.
First, the insurance in effect is separate form your loan. If you ever decide to change financial institutions before the end of your loan’s term, the contract would remain in force just as it was negotiated at the start. When you take mortgage insurance with your financial institution and decide to change institutions, you must reapply for mortgage insurance based on your health.
You then have the option of taking out a fixed or decreasing term life insurance policy. Using the example above, you would still be insured for $250,000 for the duration of your loan. Furthermore, even after you have repaid your loan, you can choose to modify your coverage from term insurance to permanent coverage. In the event of disability, you can use the indemnity amount however you see fit. Similarly in the event of death, the insured amount is paid to your designated beneficiary or your heirs.
Why should you purchase an insurance to protect your mortgage?
Because unfortunately, anyone can sustain a serious accident, become ill, or worse. These situations can result in a loss of income and financial complications that prevent you from meeting your financial obligations. Your estate will be at risk if you can’t make your payments on your mortgage.
By insuring your mortgage, you will have the funds to continue paying off your loan so that you can concentrate on a full recovery with complete peace of mind.
This not only applies to the purchase of a home, but also your other major projects: purchasing a cottage, leisure vehicle or car, making renovations, applying for a personal line of credit or a commercial mortgage loan, etc.
Source: La Capitale Financial Group
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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