It is a well known fact in the insurance industry that bank mortgage life insurance is underwritten at the time of claim.
It is not as well known by the borrowing public. In fact, the majority of mortgage customers are not familiar with the difference between underwriting at the time of claim vs. underwriting at the time of application. Do you know the difference and why it matters?
Simply put, when you buy bank mortgage insurance you only have to answer a couple of medical questions. Unless the size of the mortgage is very large (and hence you are buying a very large amount of life insurance) a nurse does not visit and take blood, urine, your blood pressure and weight.
The bank is not interested in any additional detail because they don’t actually underwrite (rate the risk) the policy until there is a claim. At that point, they may actually decide that the insured is not eligible for coverage.
That’s right, you don’t know if you really are covered until you die and your next of kin files a claim.
If you think I’m joking, watch this episode of CBC Marketplace. It will be crystal clear.
Mortgage insurance has other drawbacks as well, but they pale in comparison to the possibility of your beneficiaries finding out that the insurance they believed would protect them will not pay out.
Usually, basic term life insurance is the better alternative. That being said, it’s best to make a life insurance purchase decision in the context of your overall financial plan since everyone’s circumstance is different and there is no one answer for all individuals. If you own mortgage life insurance, you can replace it with individual coverage. Just make sure that you get the individual coverage in place before you cancel the mortgage insurance.
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed and Queensbury Strategies Inc. assumes no responsibility or liability.