During the process of getting a mortgage, you may come across different mortgage life insurance options. However, what exactly is mortgage life insurance? Do you need it? What are the options out there?
What is mortgage life insurance?
Mortgage life insurance is what financial institutions use to protect themselves in the event that you either pass away or you can no longer keep making your mortgage payments. This type of insurance also involves a premium amount added to the payments. If you pass away, then a payout is provided in order to pay off your loan.
Mortgage life insurance is also an optional product and useful if, for example, your spouse or your dependents wish to stay at your property. These parties may be unable to make the same payments as you did in the past, so having a premium amount added to your payments beforehand can be a step in the right direction. Make sure to check if you already have insurance coverage via your current employer as well.
Mortgage life insurance can aid you in covering a smaller amount as you’re paying down your mortgage. Meanwhile, permanent life insurance or term life insurance can give you more value in comparison. For example, if you have term or permanent life insurance, then the amount payable would not decrease over the term. Your beneficiaries can use the funds from this type of insurance to pay for the mortgage.
What is the cost of mortgage life insurance?
The premium amount of mortgage life insurance is based on how old you are and your mortgage amount. When you get a mortgage and start paying it down, the premium amount typically stays the same. This is also the case if the amount you owe on your mortgage decreases over time.
In order to purchase this type of insurance, you should first discuss it with your mortgage lender. Other options include having conversations with your chosen bank or insurance company.
Additionally, make sure that you are not being forced to purchase mortgage life insurance. In Canada, your mortgage lender cannot engage in this type of coercive selling.
Banks in Canada, in particular, have a code of conduct that involves providing customers with disclosure documents if they get accepted for insurance coverage.
These documents should inform you about the fact that you are applying for an insurance product, the definitions and terms related to it, as well as the customer charges and fees alongside how they are payable.
A financial institution also has to inform you that the coverage from a specific company, for instance, is optional if a separate charge gets levied for the coverage. On this note, the documents should indicate the primary insurance company’s name, when the insurance will come into effect, and when the coverage will end, and when and how you’ll be informed about either the rejection or acceptance of the coverage in the first place.
An insurance product also involves a “free look” period, which is when the charged premiums get refunded if you end up cancelling the coverage. Make sure to look into the disclosure documents to understand your own responsibilities and the right to cancel coverage as well.
Moreover, look into the claims procedures, the terms and conditions that could either exclude or limit the coverage, as well as how you could get more information about the insurance product.