ProInsure - Business Insurance, Estate and Succession Planning
We blog on various topics but the heart of our practice is helping people with their daily challenges and problems and providing thoughtful solutions to these problems and challenges, whatever they might be.
Which is better mortgage insurance or life insurance?
I feel like Rick Mercer when I hop up on my soap box and tell clients what a lousy product mortgage insurance is, I get quite animated and I wish Rick would do a public service televised rant because this product is really bad.
I got myself in a bit of a lather this week talking to new clients about mortgage insurance and the value of independent advice. If your financial advisor is not telling you about all the options available in the market place, even those they can’t sell, then you are not getting independent advice, beware, you are talking to a salesperson who can only offer you their company’s products.
If you own mortgage insurance and not life insurance you have not received truly independent advice.
Mortgage insurance, or as it is more correctly called, creditor insurance, is sold to people when they sign their mortgage documents. In many cases the borrower doesn’t even realise they are buying mortgage insurance when the sales person explains, “and this will be your protected monthly payment” which is a combination of the loan payment and the cost of insurance.
This week I met with Bob and Mary to review their insurance and this is their case study.
Bob age 62 non-smoker
Mary age 59 smoker
$103.05 bi-weekly premium (which converts to $223.27 monthly)
They have two children
In this case study you can see that mortgage insurance is a joint and first to die plan, if Bob dies the bank gets the money, if Mary dies the bank gets the money and if Bob and Mary die, yes, the bank gets the $155,000.
With personal life insurance Bob and Mary are each underwritten in advance by a life insurance company, (mortgage insurance is underwritten at the time of a death claim) and when they qualify for protection they are each covered for $155,000. If Bob dies Mary gets the money, if Mary dies Bob gets the money and if they both die $310,000 is left to their children.
Bob and Mary, if they qualify, can obtain twice the life insurance protection for less and protect their family, not the bank.