I’m entering my 28th year of financial services this year.  I have worked for two major banks, two financial services firms, and a life insurance company and of course worked independently as a mortgage broker, life insurance agent, and financial advisor.  I am a big believer in reading all of the fine print, and the terms and conditions of contracts.   It is important to know what you are applying for and what you are agreeing to.   If you don’t understand it, don’t sign it.

I want to get into the fine print of mortgage contracts and explain the terms.  I also want to explain the mortgage elements that are important to me.  I hope every existing mortgage holder and every soon-to-be mortgage holder will read this series of posts.  Please feel free to share with your friends, family, and colleagues.

Mortgage Life/Disability Insurance (Credit Protection)

My dear friend Kyra at DLC Head Office will appreciate my putting this topic first.   Having the proper amount of insurance coverage for your household/family is the most important financial planning decision.  It forms the foundation of your financial plan.   It is recommended as a general rule of thumb that each household carry 6-7 times the annual household income, plus all debts be covered with life insurance.  It is also a rule of thumb that 100% of net household income be replaced in the event of disability or illness.  Only a fraction of Canadian households carry this level of coverage.

Credit protection, for many years, has received some bad press.  There have indeed been some nightmare scenarios over the years, however most credit protection insurance is excellent!  You must understand what you are signing and applying for.

Post-claim underwriting resulting in claims being denied :
This happens when a person dies or injures themselves, claims their insurance provider and the company only underwrites the application after the claim has been made.  This means that the client has made all of their insurance premium payments as agreed, but the application has yet to formerly be approved.  If it is approved, great.  If it is declined, the family is refunded all of their premiums but the mortgage balance is not paid off.  How terrible would this be if your family lost one income, was mourning and in grief, and then found out, they did not have the insurance they thought.

Decreasing Benefit:
This is true.  As you pay down your mortgage, the balance decreases.  In the event of someone passing away the insurance provider will pay the mortgage balance and any penalties.   The argument is that the premium payment doesn’t decrease and only the benefit or payout amount does.   In my career, I have had 5 clients who made claims where their entire mortgage balance was paid out, 9 clients (maybe 10) who had a disability or illness, and their mortgage payments were made (Principal, Interest & Taxes) for them for up to 2-years, and I am sad to say I have had 6 clients pass away without accepting any coverage.   I can tell you that the families who had their mortgages paid out in full were not worried about the decreasing benefits.   The clients who were disabled and had their mortgage payments made for 2-years while they healed were very happy.  Finally, the families that were left with one income or no income and a large mortgage all except two had to sell their homes.  We always recommend that every single client make an appointment with a licensed life insurance expert because it may be better and of more value to have private and independent insurance.   However, when people wake up in the morning no one ever really declares “I’m going to go and get proper life insurance today”.  What they may say is “One day, maybe, I will go and get proper life insurance”

Slow Claim Payouts:
Slow claim payouts can cause challenges.    Does the family have enough money to make the mortgage payments (principal, interest, utilities, and taxes)?  If the claim takes too long, what happens to their credit score if payments are being missed?   Can the lender start foreclosure proceedings?  The simple answer is yes, however many of the larger institutions have sped up their claims processing to avoid the bad publicity.  However, this is an important question to be asked.

Insurance Portability:
Every Bank or Credit Union will allow you to take their life insurance policy and port/move it to your next home.  You may have to requalify for the top-up portion and pay a little more for the coverage (as we get older the insurance is just more expensive), but they will allow you to keep it.   What happens when you are up for your mortgage renewal, the financial institution sends you the renewal agreement with an atrociously high-interest rate, and you have the financial institution’s credit protection in place.   It may limit you from shopping around for a better mortgage rate.  Wait, what?  If you are in your 40’s or 50’s, insurance premiums are just more expensive.   If you change lenders, you will lose your current insurance coverage with your existing lender.  The cost to replace it may be more than any interest rate savings at another lender.  Your credit protection policy must be portable between lenders.

Exclusions:
What does your credit protection exclude?   This is something that is very important to understand.  What is covered and what is excluded?  Generally, exclusions will include pre-existing conditions, medical conditions from alcohol or drug abuse, suicide, committing a criminal offense, and a few others.  Disability insurance exclusions can include normal pregnancy or childbirth or cosmetic or elective surgery.

Benefits:

What is included?  Each policy is different and the more features and inclusions, the greater the benefit and value.   Here are some inclusions you may want to see if your current coverage includes.  Terminal illness Benefits, waiver of premium due to job loss, blending and extending existing coverage, mental health benefits, and extra disability benefits after you get back to work

Having proper insurance coverage is the most important element of your financial plan.   Having the right credit protection coverage is important.  Relying on your employer’s coverage may prove to be one of the biggest gambles of a lifetime.  Wake up tomorrow and declare “I am going to get proper insurance coverage TODAY!”.  Then call us, we can help you with your credit protection needs and provide you with a qualified referral to an expert life insurance advisor and specialist!