Mortgage Insurance Pitfalls, What You Should Know
Have you been pressured by your bank to purchase mortgage life insurance? Before you decide to purchase it, be sure to educate yourself on the Mortgage Insurance pitfalls.
The idea of mortgage insurance sounds like a good one. If you or your spouse dies or incapacitates them self then this insurance pays off the rest of your mortgage. The only problem is that it rarely works that way.
When your lender suggests mortgage insurance, they are selling you a policy, but they do not back it if it comes time to payout. It is backed by an external insurance company. The bank manages it all and the bank is the beneficiary. They ask you to fill out a form which they then keep on file for when something happens and make arrangements to collect your dough for the premiums.
Not Like Traditional Insurance
Mortgage insurance is unlike other types of insurance. As a rule, insurance policies are only sold if the buyer qualifies beforehand. Not so with mortgage insurance. Even though you fill out the form, it is not until something happens that the policy is actually “underwritten” by the insurance company. In other words, the bank collects your money but the insurance company does not review your application until something happens. Then the policy and the underwriting go under a microscope.
Lots of Potential Mistakes
As few bank employees are interested in or educated about what the criteria for medical conditions or medications are. The homeowner is left on their own to fill out the form as well as they can. The problem is that the insurer now has the perfect excuse not to pay if there are errors or omissions. After all, you provided incomplete or incorrect information.
Insurers can turn down claims years later because of incorrect answers to Apcalisz.com health questions on the application form. If this happens you will receive little or no compensation no matter how long you paid premiums. It all hinges on whether the claimant passes a post-death medical exam. Some people will not qualify as even slight health problems or common medications that have nothing to do with the claim are sometimes used as excuses to cancel the claim.
Many survivors face financial hardships because the payout does not come through when they lose their spouse. Some lenders may refund premiums, but they may also charge a penalty for breaking the mortgage if the homeowner has to sell due to financial hardship. Ninety percent of mortgage life policies do not result in claims and the lender can keep the premiums if they so choose.
Not Transferable
Mortgage life insurance is also not transferrable, so if you move or sell your premiums go up in a puff of smoke. If your health changes you may find yourself without coverage or with high premiums. Not only that, the coverage declines over time even though your premiums do not. Some policies also limit claim payments until a specified time period had passed.
You Cannot Be Forced Into Buying Mortgage Insurance
Currently, mortgage insurance is not required and cannot be used as part of the qualifying process. If your bank tries to force you into it they may be engaging in “tied selling” which is strictly forbidden in the Bank Act of Canada. It is important to stay on top of the laws surrounding your rights as a homeowner or potential homeowner. If you are missing out on vital information or being pressured into taking on mortgage insurance when you do not want to, contact your accredited mortgage professional. It is their job to know what is happening in the mortgage world and they do it well. They can hook you up with a reputable lender.
Look Into Other Insurance Options
Most people buy into mortgage insurance for peace of mind, but there may be better ways to do it. Contact your life insurance company for a quote on added life or term life insurance coverage for your mortgage. It will probably be cheaper, easier and more flexible. John Davis of Spectrum Physio in Newmarket Ontario, says shopping around before committing saved him thousands over the term of the policy. The only situation where mortgage life insurance might be preferable is if you are disabled or have a disease that makes it impossible or too expensive to get other insurance.
Have questions about insurance related mortgage products? Before you purchase anything, speak to one of our mortgage professionals to find out what you really need and what you do not.