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Old 04-21-2012, 08:53 AM   #61
Slava
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Join Date: Dec 2006
Location: Calgary, Alberta
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Quote:
Originally Posted by Kristi Hyson View Post
Hi,

I agree mortgage holders require insurance, however, I disagree with the information posted "It doesn't offer the same security and bluntly the party that receives the protection in those cases is the financial institution."

Clarification, life insurance offered by financial institutions is not in the financial institutions best interest, the insurance is in the mortgage holder’s best interest. The only insurance requirement the financial institution is concerned about is fire insurance. The property in which the mortgage is registered is the security, if the home is not insured against loss of life, health crisis & disability the property can be foreclosed on in the event of a death or an accident.

Mortgage insurance offered by financial institutions cover the entire mortgage including the penalty. If you take a policy with a third party insurance company for the mortgage amount and do not include provisions for the penalty (in the event of an early payout) the policy will not cover the mortgage in full and will leave an outstanding balance. With the financial institutions policies the mortgage is paid in full inclusive of the penalty.

It is best to review all options and choose the insurance product that best fits and meets the needs of the borrower.
I do agree that reviewing all of the options is the most important, and clearly the point is what is best for the borrower. Here are the reasons that buying a separate insurance policy makes more sense for the vast majority of people:

- The policy is not contingent on staying with one lender. When your term is up you can move your mortgage without needing to requalify for insurance, and won't be affected by medical changes.

- The policy pays the face amount, regardless of the value of your mortgage. This means that if you buy coverage for $500k you get a cheque for $500k to do with as you please. You can pay out the mortgage if you decide to. You don't have to though, and some people don't. A normal mortgage insurance policy pays out the mortgage and thats that.

- Your stand-alone policy is underwritten before you get a policy. A lot of mortgage insurance is underwritten at the time of a claim. What that means is that you know where you stand as far as coverage before you start paying for a policy, whereas with a lot of mortgage insurance you find out at the time of a claim whether the coverage will be paid; hardly a preference for most people and a huge risk that can be avoided.

- Because you determine a face amount for the coverage of a stand-alone policy you also factor other things in such as final expenses, income for a surviving spouse, donations to charity, school or wedding expenses for children, etc. Its a much more comprehensive coverage in that sense.

- The vast majority of people buy a policy each (for a couple) that covers them in the event of a death. This means that they're both insured, and if one does pass away the other still has a policy in force. Mortgage insurance pays the mortgage and its done.

This is all for life insurance, but there are also the same considerations for disability and critical illness coverage. Yes, the mortgage insurance can be useful for some people, but those cases are few and far between. The better route for most people is to get their own policy/policies and then decline the mortgage coverage.
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