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Paramjit S. Girn

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Mortgage Liability Insurance

Should you ACCEPT or REJECT?

Many home buyers find themselves in the un-envious position of getting mortgage life insurance when getting a mortgage loan from the bank. And, it is completely understandable for new home owners to accept the mortgage liability insurance because they do not want to leave their dependents with an unpaid debt if something happens to them.

What is mortgage Liability insurance?

It is a type of insurance that is designed to help protect home owners if something were to happen to them. If something were to occur a mortgage life insurance policy would pay out or cover the amount owing on the outstanding mortgage.

Since, mortgage insurance is not mandatory, it is completely up to the borrower if they want to purchase protection for their mortgage and there is no limitation as to whom they choose to purchase such a policy from. Therefore, you don’t need to feel pressured by your bank, as you can also get this coverage from insurance companies and brokers.

  • Who Take Care of Your Family Home If You die today?
  • How will you pay your mortgage if you become disabled?

Liability insurance should also not be confused with mortgage insurance or high ratio mortgage insurance, which is designed to protect the lender against the risk of the borrower defaulting on their loan. CMHC and Genworth are the largest players offering high ratio mortgage insurance in Canada

Why you should politely decline mortgage life insurance from the bank

What most homeowners fail to realize is that mortgage liability insurance offered from banks is much different from the policy that are available through mortgage brokers. Why?

Let’s compare insurance options using the following example:

Mr. Jacob Smith hard working 43 year old healthy man happily married with 2 kids named Tina and Natasha gets a mortgage for $300,000 and gets banks liability insurance policy for the amount of his mortgage. 8 years in the mortgage, Mr. Smith gets a sudden major heart attack early morning and passes away, and when he does, there is only $50,000 owing on his mortgage.

  • Since he purchased liability insurance from the bank: The value of the policy decreases overtime as the bank only pays out the amount that is remaining on the mortgage. Payout: $50,000
  • If he owned this mortgage liability insurance policy: The value of the policy remains the same throughout the lifetime of the policy and the insurance company pays out the entire amount. Payout: $300,000

Major distinctions worth knowing about liability insurance offered by your banks and other companies

  1. Non-bank insurance policies coverage amount remains the same even as you payout the total amount, regardless of what is still owning on the mortgage
  2. Non lender liability insurance is owned by the borrower. You are free to take your coverage to any lender.
  1. Banks policy pay out amount decreases as you pay off your mortgage
  2. Bank’s liability insurance is owned by the bank and you are not allowed to take the coverage with you, when decide to move to other bank for a mortgage

Below are 10 major benefits of Mortgage Protection Plan (MPP):

  1. Underwritten by The Manufacturers Life Insurance Company (Manulife Financial)
  2. Regardless of your health you have some kind of coverage as long as you are between 18 – 65 years old.
  3. Coverage will start the minute you complete an application. You just have to pay the first premium when it is due.
  4. You can pay the monthly premiums by credit card, debit from any financial institution.
  5. The premiums do not automatically increase with age
  6. The premiums rate compare favorably with both major banks insurance plans & other term insurances
  7. In case of disability the benefit amount floats to match your mortgage interest rate, no matter how high it goes. Unlike other policies, you won’t be charged more if in case interest rate or payments goes up.
  8. Your coverage is fully portable to any other lender.
  9. When additional funds are advanced only topped up portion is priced according to your age not the full amount
  10. Mortgage Protection Plan will start taking care of the mortgage payments as soon as a completed life insurance claim form comes in, and will keep making the payments for as long as it takes to receive all the documentation and reach a final decision.

Which mortgage liability insurance is for you- Banks or Non-Banks?

It depends on your financial situation. However, if you are the main financial contributor in your household and your death would put your dependents in a situation where they may not have the means to pay your mortgage, then Mortgage Protection Plan (MPP) also very well be suitable option.

Not sure if this is for you. Contact Mortgage Delivery Guys Team and a licensed affiliate will assess your situation to determine which liability insurance banks or non-bank mortgage is right for you. Give us a call to set up a meeting, so we can help you improve your situation.