Loan insurance needs to be shopped around! Your bank or caisse may not offer you the best product at the best price, so be sure to consult a broker.
Mortgage life insurance is an insurance policy specifically designed to protect a repayment mortgage. The underlying concept of this insurance policy is that should the policyholder die or become incapacitated, the coverage will pay off the balance of the mortgage. This coverage specifically protects the borrower, whereas private mortgage insurance is designed to protect the lender from the risk of default.
The general structure of a mortgage life insurance product is such that, at the start of the contract, the value of the insurance cover must be equal to the outstanding capital on the mortgage to be repaid. The contract is terminated at the same time as the scheduled final payment on the mortgage. The insurance company providing the cover then calculates the annual rate at which the cover should decrease, so that the capital values reflect each other. Depending on the insurance company, there are a variety of mortgage life insurance products on the financial market. Some offer to pay if the insured is diagnosed with a terminal illness, and is expected to die within the next 12 months. Based on the structure of mortgage life insurance, the value of this product decreases as the policyholder pays more premiums to the insurer.
Mortgage life insurance vs. traditional life insurance
Mortgage life insurance is not required by, and the decision to initiate this product is yours. This insurance product has been heavily criticized by financial advisors; in certain circumstances, a product of this caliber is suitable for individuals who do not qualify for life insurance products. Mortgage life insurance is sold without reserve and, after you make a claim (if any), the insurance company indemnifies you so that you can indemnify the bank. Banks do not sell this product as their own. Rather, it is sold through them on behalf of an external company. If a bank tries to force you to buy mortgage insurance, or discriminates against you for not buying it, this is considered illegal behavior and is referred to as "tied selling". The term "tied selling
Some details of mortgage life insurance products include the following:
- The bank is the beneficiary - unlike life insurance policies, where the insurer can choose its own beneficiary.
- Coverage is non-transferable - this means that the policy is tied to a specific mortgage and cannot be transferred to other properties.
- The plan terminates upon the death of one of the spouses - unlike life insurance policies, which provide beneficiaries with a double benefit in the event of the death of both spouses.
- Coverage is not convertible - this means that the policy cannot convert the product into any form.
- There is no cash value - at the end of the coverage, no premium is returned.
Do you need mortgage life insurance?
The question underlying this product is: "Does this make sense?" To answer this question, it's best to have a needs analysis done by a financial advisor or life insurance agent, which will provide a clearer picture of whether this product is right for you. As you consider ways to ensure that your mortgage is paid off in the event of your death before term, don't forget to store around for the right level of benefits at a realistic price. Visit life insurance sector Because the market is so competitive, you shouldn't take out the first available policy you find - do your research first.
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