Insure your mortgage properly

If you’re purchasing a home and taking out a mortgage, it will likely be the largest debt you ever have. Is your mortgage fully protected?

You have options to insure this mortgage, in the event of an untimely death.

Mortgage lenders offer insurance called creditor insurance. This type of insurance is costly. It is not flexible or portable if you move your mortgage.

The premium is the same while your mortgage loan goes down.

You end up paying a fixed premium for reduced coverage.

Smokers and non-smokers are lumped together.

When your mortgage comes up for renewal and you change lenders, you will have to reapply for insurance with the new lender.

At this point there may be changes in your health.

The biggest question about creditor insurance arranged through a lender is: Am I really covered?

The application contains a few basic health questions.

Many people failed to disclose full information about their health when completing a creditor insurance application.

Creditor insurance uses post-claim underwriting, meaning the insurance company can delve into your medical history after a claim is made.

If your health concern is not disclosed on the short questionnaire, your claim may be denied.

There are unfortunate stories of people saying their banks turned down their claim years later because of an incorrect answer to the health questions.

This means you may have been paying the premiums and your mortgage may not be protected.

Your mortgage balance is not paid off and your family is saddled with the debt.

With creditor insurance, the beneficiary is always the bank or lender. What is the alternative? Take the time to obtain quotes for individual term life insurance through an agent or broker.

These policies are very different from creditor insurance. Underwriting Applications consist of a complete medical questionnaire, with full disclosure and medical tests, if required.

This insurance is based on your health at the time of the application.

Trained insurance agents know how to explain the health questions correctly and complete the detailed information.

For example, dosages of medications taken, specific medical tests, results from x-rays and ultrasounds and information about visits to chiropractors and physiotherapists.

If the underwriting department needs more information, with your permission, they will communicate with your doctor.

Premiums are based on your current age, health, smoking status and your family health history. Portability When your mortgage comes up for renewal and you change lenders, you take the individual insurance with you and sign the waiver for creditor insurance coverage with the new lender.

Level premiums for level coverage

With individual insurance, you pay level premiums for a level amount of insurance.

This is more cost effective than creditor insurance, which also has level premiums, because the amount of insurance decreases as your mortgage decreases. Beneficiaries On an individual policy, you name your own beneficiaries.

Your loved ones can decide what to do with the insurance money.

They may decide to pay off the mortgage, invest it or use the money for something else. Term life insurance This is an individual life insurance policy that covers you for a set number of years.

Terms are typically between 10 and 30 years.

The coverage stays level and the premiums stay level for the entire term.

While insuring your mortgage, it is most cost effective to include family protection as well.

Families require added insurance if either mom or dad dies, especially when the children are young and dependent.

When applying for a mortgage, you have insurance options.

Compare individual and creditor insurance. Individual offers portability, underwriting at time of application and flexibility, all at lower costs.