Bank Mortgage Insurance vs. Individual Term Life Insurance

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By Sherene Cole
August 13th Edition

You’ve purchased a home and in finalizing the details, the bank offers you mortgage insurance which will pay off the balance in the event of your premature death. Great you say, but how do you know you have made the best decision? Here are some key differences between the insurance you purchased from the bank and that available from a private term life insurance policy. The following example looks at $500,000 in coverage over a 20 year period.

INDEPENDENT COVERAGE VS JOINT COVERAGE
Bank mortgage insurance is usually based on joint life, so if either insured party dies – husband or wife, the benefit kicks in and the policy ends.

Term 20 Life Insurance on the other hand offers independent coverage for both husband and wife, so if one dies, a full $ 500,000 is paid, and the surviving spouse’s coverage continues.

LEVEL COVERAGE VS DECLINING COVERAGE – The bank’s coverage is based on the outstanding balance of the mortgage, which means the amount payable in the event of death declines with that mortgage with every passing month. Term 20 Life insurance will always pay the full policy coverage amount of $500,000 during the entire 20 year coverage period.

FLEXIBILITY & PORTABILITY – The bank’s coverage is tied to your existing mortgage, your existing location and with one particular bank. In the event that you have to refinance or apply for a new mortgage in future, your rates will depend on your age or health condition then. The Term 20 is fully controlled by you; you will not need to re-apply when you re-finance, move, or change banks. In addition, the Term 20 policy will still be effective even if you no longer live in Canada or carry a mortgage.

CONVERTIBILITY -The bank’s policy is not convertible to any permanent life insurance plan, while the Term 20 can be converted to any permanent plan regardless of your health or occupation.

BENEFICIARY & CREDITOR PROTECTION – The Bank will always be the beneficiary, and the death benefit must go to the bank to pay off the balance of the mortgage. With the Term 20 you will always have the flexibility to name your beneficiary. That could make a major difference if there is a claim against your estate. The Term 20 Life Insurance policy will give you “creditor protection” as it is governed by the Canadian Insurance Act.

Due to the life insurance beneficiary designation, it will bypass the estate, avoid the probate tax, and the family will get the funds much faster. It’s more tax efficient, and much simpler.
I sell term life insurance with some unique features including: Extreme Disability Benefits, Built-in Insurability Clause, 5 years renewal intervals after the initial 20 year guaranteed period, Optional $ 20,000 Critical Illness Rider and a Disability Rider, which by far makes this the Number One Term Plan on the market today for mortgages, loans, or other types of protection.

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