Mortgage Protection; What You Think Is the Easiest and Cheapest Probably Isn’t

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As a parent of a four-year old daughter, I understand there is nothing we won’t sacrifice for our children’s future, including sleep, health, financial future and yes, even retirement. When she was born, I knew she needed a good education, a nice safe home to live in, good manners and a solid upbringing to ensure she had a productive and happy life. The last thing I was thinking about was what should happen if I was not there to give it to her. Unfortunately, we hear too many stories of others who, like us, dreamt of a bright future for their children, while also assuming they’d be around to provide and share it. But life just didn’t work out for them as planned, and now we, their friends, colleagues and family witness first-hand the financial upheaval the family goes through when one of the parents is no longer around to help financially.

I remember telling those same thoughts to a friend over dinner and the importance of having the proper type of life insurance in place. He nodded and smiled and said “I fully understand but I have had some exciting news.” “I bought a new home for the whole family and will be moving into it in two weeks.” I was so happy for him because, like most of us, buying our first home is a big accomplishment. I asked him, “What kind of protection did you get for your mortgage?” And he replied, “Oh it was simple, the bank had me answer a few medical questions and said if anything happened to me the mortgage would be paid off.” I replied, “Are you sure that’s what you want?”

You see it is human nature to choose the path of least resistance and select what is easiest for us do. I told him, “Let me explain what some of the key differences between bank mortgage protection and protecting your mortgage using critical illness and life insurance. The main difference is that in the case of mortgage protection the bank benefits because their loan to you is paid directly to them by the insurance not to your family.  Additionally, your coverage declines as your mortgage balance declines while your payments stay the same. Critical illness insurance pays you a lump sum that can be used to pay your mortgage or other expenses as you choose. Life insurance pays a tax-free benefit to whomever you trust and choose to benefit when you die. The payment can cover more than just the mortgage, as the coverage doesn’t decline over time and the beneficiary can use the money from the policy in any way they need to.”

He said, “Oh really I didn’t know that! Tell me more.” I asked him, “Is this your forever house or can you see yourself moving and possibly getting a bigger house one day?” He replied, “Yes, we would like to have more kids and my mom might have to move in with us when she’s older, so we’ll probably need a bigger one.” I said, “Great! Did you know if you change mortgage providers, your mortgage protection doesn’t automatically move with you? If you move your mortgage to another bank, you will be required to submit evidence relating to your health again, and will pay the current rate of the new mortgage provider. With life and critical illness insurance, you can take your policy with you, no matter whom your mortgage is with and there is no need to re-apply or prove you’re healthy.”

The most scary and dangerous difference is the banks practice called post-claim underwriting. Imagine you have just passed away and your family needs the money and files a claim. It’s at that point the bank begins phoning around to doctors and checking into your medical history. There was a story about Angela Massa and her husband back in 2014.  Angela Massa’s husband was diagnosed with lung cancer and died at the age of sixty. Scotiabank mortgage protection denied the claim for the couple’s $289,000 mortgage because her husband answered a health question on his application incorrectly. Her husband had signed a document saying he had no pre-existing medical conditions. In fact, Mr. Massa had been tested and treated for a liver problem years before. The bank learned of it after his death, when they asked his doctor for medical records.  I finally advised, If you plan on keeping the bank’s mortgage protection, make sure you answered the health questions correctly. The difference could be hundreds of thousands of dollars.


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