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red sky
06-05-2013, 07:12 AM
The bank makes it seem like it is a no brainer but I am wondering if others have differing opinions? Obviously it should depend on ones overall life insurance policies but ignoring that, if possible.

onetwo_threefour
06-05-2013, 07:39 AM
This has been discussed in some other threads in past in more detail, but the general recommendation would be to shop around. Typically the mortgage life insurance offered by the lender is not as good as obtaining independent insurance. Some points (not exhaustive):

1. It is non-transferable. If you have a five year mortgage with bank life insurance and get diabetes three years from now, then decide not to renew with your lender because you could get a better rate/product elsewhere, you're not going to be able to keep the insurance. This is only one example but there are many ways this non-transferability might tie you to the bank.

2. The bank is the designated beneficiary, meaning the mortgage is paid off but there is no cash payout to your estate if you die. This might be okay, but if it's he only insurance you have you may be leaving your estate with a debt free house but no cash to pay the bills depending on your financial situation. Further, with interest rates as low as they are right now, you might prefer that you beneficiaries get cash and keep the mortgage so that the insurance proceeds can be invested or divided among beneficiaries without having to remortgage or sell he house.

3. You are paying a fixed premium for a declining payout. Unlike a term life policy that is worth the same face value in 3 years as it is today, mortgage life insurance covers the balance of the mortgage which goes down over time. The faster you pay off the mortgage through privileges, the worse it is. I honestly don't know whether the premiums are lower on accelerated payment schedules if set up from the outset.

4. My understanding, anecdotal as I am a lawyer, not an insurance salesman, is that the cost of bank life insurance is not any better than getting the same coverage independently.

5. The one advantage I recall is that lenders life insurance is relatively easy to get compared to independent life insurance. It requires less time and effort on the part of the customer to arrange.

I'm sure others can add anything I'm not remembering, but those are the main points.

Slava
06-05-2013, 08:59 AM
Those are the high points, but there are others. Despite mortgage coverage being underwritten by the same providers (say Manulife, Canada Life for example) they often do the underwriting at the time of the claim as opposed to a stand-alone policy where the underwriting is completed at the time of the application. That's an enormous difference in many situations and should definitely be considered.

Those other points are largely accurate, but you have so much more flexibility with your own contract that the benefits far outweigh any minimal cost differences (if there are any). For something like disability coverage the difference is even larger because a mortgage policy here will cover the mortgage payment if you are disabled (which is better than nothing!), but often times you have other expenses you would like covered as well.

I guess I should disclaim that I do sell these products, so I could go into far greater detail if people are interested, but between these two posts you have a coles notes version to consider.

onetwo_threefour
06-05-2013, 09:24 AM
^ I've heard that before Slava, that the insurance is underwritten at the time of the claim. I've not been clear on what is meant by that though. Surely, if you've been paying premiums the insurer is obligated to insure you at the time of a claim since they approved you for insurance and set premiums based on risk at the time of application. Is this a way of saying that they can deny coverage based on an intervening event such as what I sad above, like being diagnosed with cancer or diabetes? That would make such insurance potentially useless for anything other than an accidental death it would seem. It would seem borderline unethical to me to sell something like that and be able to call it insurance.

Slava
06-05-2013, 11:47 AM
^ I've heard that before Slava, that the insurance is underwritten at the time of the claim. I've not been clear on what is meant by that though. Surely, if you've been paying premiums the insurer is obligated to insure you at the time of a claim since they approved you for insurance and set premiums based on risk at the time of application. Is this a way of saying that they can deny coverage based on an intervening event such as what I sad above, like being diagnosed with cancer or diabetes? That would make such insurance potentially useless for anything other than an accidental death it would seem. It would seem borderline unethical to me to sell something like that and be able to call it insurance.

Well the way it works is that you sign and say "no" to a list of conditions (which is literally a full paragraph for example of conditions, risk factors and the like). At the time of claim they go back and take a look and see if they would've insured you based on that information (which is a really basic way of describing what happens). So, its not the intervening event here, but the original event.

What does happen though, is that people buy the insurance and pay premiums for years and find out in the event of a claim whether they're entitled to coverage. At that point, its much more tenuous than your own stand-alone policy though, where the outcome is much more known.

CarlW
06-05-2013, 12:28 PM
^ I've heard that before Slava, that the insurance is underwritten at the time of the claim. I've not been clear on what is meant by that though. Surely, if you've been paying premiums the insurer is obligated to insure you at the time of a claim since they approved you for insurance and set premiums based on risk at the time of application. Is this a way of saying that they can deny coverage based on an intervening event such as what I sad above, like being diagnosed with cancer or diabetes? That would make such insurance potentially useless for anything other than an accidental death it would seem. It would seem borderline unethical to me to sell something like that and be able to call it insurance.

There is a pretty good video by CBC marketplace that's popular in the industry that covers this if you have 19 minutes to watch it:

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I would also like to add, from the bank policies I've seen they like to decrease your coverage as your mortgage is paid down (so that it always only covers what your outstanding mortgage is) while your premiums stay the same.
As an insurance advisor I would never sell a policy like that, not to mention try explaining that type of policy to your client yikes.

troutman
06-05-2013, 02:54 PM
I still find it odd that lenders expect lawyers to present these plans to clients. Really not our job to sell their insurance, and possibly a conflict of interest.

Slava
06-05-2013, 06:36 PM
I still find it odd that lenders expect lawyers to present these plans to clients. Really not our job to sell their insurance, and possibly a conflict of interest.

They do?! That is perplexing. Aside from the licensing and continuing education requirements, the potential liability exposure alone would seem to make that a recipe for disaster. I had no idea they asked you to get involved in that at all.

onetwo_threefour
06-05-2013, 07:09 PM
Yeah, I do agree with Troutman. I would never advocate any particular policy of insurance to a client and I really don't know why the bank feels it is appropriate. I guess they figure it's a no-lose strategy. If a client happens to yes to a policy, it's not like they pay a commission to the lawyer, and if they don't the lender isn't losing anything since it costs them zero dollars to have the lawyer present the insurance. The thing that p!sses me off is that most of them won't fund without the signed application, waived or not. It adds time to my appointment that I don't get compensated for and theoretically takes time away from a client's questions or my advice to them on other issues. Obviously, the lender couldn't care less whether Joe Lawyer incurs liability for selling insurance. Isn't that the best kind of client, one who insists that you do something that could lead to liability unless you walk a tightrope?

Unfortunately, it's not like we can tell the bank to PFO with this stuff as they just make it a funding condition to get the documents signed. It's kind of like all the FNF lenders where we have to get the client to re-sign virtually every document they've already signed with the broker. It's a colossal waste of time, since the broker should have already submitted the commitment, PAD, confirmation of conditions etc.

Anyway, that's my vent about this.

Thanks for the info about underwriting. It still seems ludicrous to me that the insurance can be charged for without the criteria for insurabilty being satisfied at the outset.

Slava
06-06-2013, 09:08 AM
Yeah, I do agree with Troutman. I would never advocate any particular policy of insurance to a client and I really don't know why the bank feels it is appropriate. I guess they figure it's a no-lose strategy. If a client happens to yes to a policy, it's not like they pay a commission to the lawyer, and if they don't the lender isn't losing anything since it costs them zero dollars to have the lawyer present the insurance. The thing that p!sses me off is that most of them won't fund without the signed application, waived or not. It adds time to my appointment that I don't get compensated for and theoretically takes time away from a client's questions or my advice to them on other issues. Obviously, the lender couldn't care less whether Joe Lawyer incurs liability for selling insurance. Isn't that the best kind of client, one who insists that you do something that could lead to liability unless you walk a tightrope?

Unfortunately, it's not like we can tell the bank to PFO with this stuff as they just make it a funding condition to get the documents signed. It's kind of like all the FNF lenders where we have to get the client to re-sign virtually every document they've already signed with the broker. It's a colossal waste of time, since the broker should have already submitted the commitment, PAD, confirmation of conditions etc.

Anyway, that's my vent about this.

Thanks for the info about underwriting. It still seems ludicrous to me that the insurance can be charged for without the criteria for insurabilty being satisfied at the outset.

Actually that is basically the exact argument for why a claim could be denied. As in that Marketplace video above when the potential insured signs to say "No" to that list of conditions and pre-existing concerns, where in fact they ought to be answering "Yes", they aren't meeting that criteria for insurability. Its just that no digging is done at that point to verify this. Instead, its done at the time of claim.

Unfortunately this is a very real issue for people. Not only do people share some stories in that video, but I've seen enough in my experience to say that I think people should get their own policies and not have this potential issue. I say that, not as a sales pitch either, because this is something people should be doing regardless of whether you contact me specifically, just as long as you investigate this with someone!

bizaro86
06-07-2013, 10:19 AM
The bank makes it seem like it is a no brainer but I am wondering if others have differing opinions? Obviously it should depend on ones overall life insurance policies but ignoring that, if possible.

A bunch of technical issues on insurability, underwriting and regulatory pieces have come up in this thread. But I think you should decline the insurance through your mortgage for one simple reason. IT'S VERY EXPENSIVE.

I just switched out my mortgage insurance (through Slava, fwiw) for regular life insurance, and I got about three times as much insurance for the same monthly payment. Life insurance is way more expensive if you buy it through your mortgage. You probably need some if you're getting a mortgage, but you're way better off to buy it somewhere else.