When it comes to protecting our loved ones and our financial obligations, insurance plays a vital role. Two common forms of insurance that often overlap in purpose are bank sold mortgage insurance and personally owned life insurance. While both aim to provide coverage in the event of an individual's passing, there are significant differences between the two. In this blog post, we will explore these differences and help you make an informed decision about which option may be better suited to your needs.
Bank Sold Mortgage Insurance:
Bank sold mortgage insurance is typically offered by financial institutions when you obtain a mortgage. Its primary purpose is to protect the lender's investment by paying off the outstanding mortgage balance in the event of the borrower's death. Here are some key characteristics of bank sold mortgage insurance:
Coverage Limitations: The coverage amount is generally tied to the mortgage balance, decreasing as the mortgage is paid down. As a result, the coverage may not adequately address other financial needs beyond the mortgage.
Non-Portable: Bank sold mortgage insurance is typically non-transferable, meaning that if you switch lenders, you may lose the coverage and have to reapply with the new institution.
Underwriting Post Claim: The application process is relatively simple, with limited or no underwriting requirements. However, this convenience may come at the cost of higher premiums, as the insurer assumes a higher level of risk without a detailed assessment of individual health and lifestyle factors. As well, payouts can often declined after someone has already died due to reasons found after the fact.
Declining Coverage: As the mortgage balance decreases over time, the coverage amount also declines, even though the premiums remain the same. This means you may be paying more for less coverage as time goes on.
Generally More Expensive than traditional life insurance. In a time where inflation is high and everything feels expensive, simply switching from bank mortgage insurance to personally owned can be a great way to save some money every month!
In 2008 CBC did a great expose on the dangers of bank sold mortgage insurance which we always encourage people to watch: https://www.youtube.com/watch?v=qe61HVGIwUo&ab_channel=CBC
Personally Owned Policies:
Personally owned life insurance, on the other hand, is a policy you acquire directly from an insurance company. It offers broader coverage and more flexibility compared to bank sold mortgage insurance. Here are some key features of personally owned life insurance:
Coverage Flexibility: Unlike bank sold mortgage insurance, personally owned life insurance allows you to choose the coverage amount according to your specific needs. It can provide protection beyond mortgage obligations, such as income replacement, education expenses, or other financial goals.
Portability: A personally owned life insurance policy stays with you, regardless of any changes in your mortgage or lenders. You have the freedom to switch lenders without affecting your coverage.
Underwriting Process: When applying for personally owned life insurance, you undergo a thorough underwriting process that considers various factors like age, health, lifestyle, and medical history. This process helps determine your risk profile, leading to potentially lower premiums and tailored coverage options. Once issued, a personally owned policy will always payout
Level Premiums: With personally owned life insurance, the premiums typically remain level throughout the policy's term. This means that you pay the same amount regardless of changes in your mortgage balance.
Generally much less expensive than Bank Sold Mortgage Insurance
While bank sold mortgage insurance may provide convenience during the mortgage application process, personally owned life insurance offers more comprehensive coverage that extends beyond mortgage obligations. It allows you to tailor the coverage amount, offers portability, undergoes a thorough underwriting process, and maintains level premiums. There are hardly any reasons to purchase insurance through your bank.
To make an informed decision, consult with a trusted insurance professional who can assess your specific circumstances and guide you towards the best insurance solution that aligns with your needs and financial objectives. Remember, choosing the right form of insurance is an essential step towards safeguarding your family's financial security.
Contact us today for a risk-free phone call and we would be happy to answer any questions you may have or to run quotes over the phone so you could see what you could be saving!