The BIG risks of mortgage insurance

Mortgage insurance

‘Mortgage insurance’ is not the right way to insure your mortgage

Many people get misled or confused when they hear the phrase mortgage insurance.

Although insuring against the debt of your mortgage is a great idea, doing it with mortgage insurance is a bad idea.

Why is mortgage insurance so risky?

Here are the top 5 reasons you should say no to mortgage insurance:

1. The bank or lending institution is the beneficiary

If you suddenly pass away, mortgage insurance pays the remaining balance of your mortgage to the bank or lending institution, NOT your family.

This is a huge problem.

If a spouse or parent passes away, having the bank as a beneficiary is not helpful at all. 

2. You are paying for decreasing coverage

Your premiums stay the same but every single month as you pay down your mortgage, your coverage is going down.

You are paying for a decreasing amount of coverage on a monthly basis but your payments do not decrease with it.

3. Portability

If you switch your mortgage to another institution, you don’t keep your original mortgage insurance. You are now older so it is going to cost you more every time you change your mortgage.

4. Post-claim underwriting

You don’t do any medicals for mortgage insurance. If you pass away, the underwriting is done at time of claim. This means you could have paid into this your entire life and should something happen, you are not covered because of health issues you had in the past.

5. It’s expensive

Mortgage insurance is not cheap. It doesn’t work like life insurance so the rates are much higher, which only costs you a lot more.

What’s the solution?

Term life insurance.

Here are the top 5 reasons why term life insurance is the only way you should insure your mortgage:

1. Your family is the beneficiary

If you suddenly pass away, your family will receive a tax-free lump sum cheque and they can decide what is best to do with the money.

Whether its paying down the mortgage, saving, using it for income replacement, children’s education, etc. They have plenty of options.

2. You coverage remains the same

The amount you are covered for never decreases. So if you started at $500,000 of coverage, it remains at $500,000 the entire time. As you pay down your mortgage, you are creating a healthy gap between your coverage and remaining mortgage balance.

3. You own the insurance policy

You are the owner of your policy. It is a contract you have with the insurance company which is not impacted if you sell your home or switch your lending institution. There is no risk of your premiums increasing or having to redo medicals in the future.

4. Underwriting already completed

All of your health questions and possible medicals are done before they approve you. The insurance companies have thoroughly gone through your health history and you can be rest assured if something happens to you, your family will receive the proceeds. 

5. It’s cheaper

Term insurance has better rates. You will have all these added benefits plus it will cost you less. You also have more options and features to choose from.