by Glenn Cooke
....and if you have mortgage life insurance with your bank now, you should replace it with term life insurance.
You’re in the bank signing for your mortgage. The mortgage person asks you ‘do you want mortgage life insurance’ and being a practical person you say yes. You want your family covered in the event of your death, and are willing to pay a premium for this security.
At this point most people are just looking to check a box that they have life insurance coverage. They simply accept what was presented to them, in the confusion of all the paperwork they neglect to compare prices or features of the insurance they bought. Life insurance is life insurance, right? Unfortunately, with bank mortgage life insurance the reality is quite the opposite.
First up are premiums. Bank mortgage life insurance premiums are often as much as double what the costs are for a comparable amount of term life insurance. You can confirm this on our ‘mortgage life insurance costs’ page where you can run your own quotes of the banks vs term life insurance premiums.
It may seem unbelievable that the banks charge that much more than term life insurance – how can they get away with that? It’s simple – people simply don’t compare prices when they’re at the bank signing their mortgage documents. There’s too much other stuff going on at the time for people to want to stop and consider other options. It’s the very definition of an uncompetitive marketplace where nobody ever compares costs. By contrast, term life insurance is heavily shopped by both consumers and brokers, and life insurance companies know that if they want to sell policies they must compete aggressively on prices.
Some years ago CBC Marketplace ran an expose on mortgage life insurance from the banks (CBC Marketplace – In Denial), and they concluded that you should never purchase this type of policy because of denial of life insurance claims Instead you should purchase term life insurance from an independent broker (such as The Term Guy).
The reason is that, like prices, the application is done under time pressure while sitting at the bank. The bank employee asks a series of medical questions that people just respond with a series of ‘no’ questions.
The mortgage life insurance coverage is then offered to you without anyone evaluating your eligibility or responses. When/if you should pass, THEN they pull your original application to review it and determine if in fact you were ever actually covered (this is called post-claim underwriting) And because you answered the questions in a sloppy, rushed fashion, there’s a pretty decent chance you glossed over disclosing something that the company can use to decline the claim. They deny the claim, and you’re kind of out of luck at that point since you’re now dead.
By contrast with term life insurance, your medical history is disclosed and evaluated upfront before a policy is provided. If you pass, there’s less chance of a surprise because the company has already reviewed your medical information and found it acceptable.
Still Have Questions?
We have insurance experts available to answer all your questions.
What happens if you become uninsurable during the coverage of your mortgage life insurance from the banks? There’s a variety of ways that you can become uninsured.
First, every time your mortgage is up for renewal, you need to reapply. If you’ve become uninsurable, you’ll be out of luck on a new policy.
Every time you switch banks with your mortgage, you’re looking at a new insurance application as well. Again, if you’ve become uninsurable since your last application, then new coverage will be denied.
Compare this with term life insurance such as the policies we offer here. First your policy is renewable for life – no matter what happens, premiums are guaranteed for life and cannot be changed once the policy is issued. Plus you can choose your initial level term in increments of 5 years, ranging from 10 years to 30 years – which guarantees your premiums are level for that term no matter what happens to your health or insurability.
In addition, term life insurance policies offer a conversion option. Up to age 71 you can – without any medical evidence – exchange your term life insurance policy for a permanent, lifetime policy with level premiums for life. And the premiums for the new policy will be based on your health status from your original application (so, likely healthy rates). It’s that easy – send in a signed request and the insurance company will reissue your term policy as a lifetime policy with level premiums for life, at healthy rates – even if you’re uninsurable. This is the choice that many people make when they become uninsurable, as they change their minds from wanting coverage during the mortgage years, to wanting coverage for life.