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.
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 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 polices that are available through 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 broker pays out the entire amount. Payout: $300,000
Major distinctions worth knowing about liability insurance offered by your banks and other companies
- 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
- Banks policy pay out amount decreases as you pay off your mortgage
- Non lender liability insurance is owned by the borrower. You are free to take your coverage to any lender.
- 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
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 banks mortgage liability insurance also very well be suitable option.
Not sure if this is for you. Contact Mortgage Delivery Guy and an expert 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.