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To cover your mortgage in case of death, there are seven reasons why an individual life policy is better than a lender's mortgage insurance.
1. Underwriting - Lender's mortgage insurance is actually a group insurance and is one size fits all. The risk is spread among the people who get it. More often than not, underwriting is at claim or at incident. There is a possibility of not getting the pay out. And there is a growing number of people who are denied claim from the lender's mortgage insurance. Check out this latest link which a client of mine informed me about:
a. http://www.cbc.ca/marketplace/in_denial/
b. It is a segment on lender's mortgage insurance and interviews of people who have been denied claim for one reason or the other. For most part, it is because of the underwriting process. It is better to go for an individual life insurance policy based on your age, sex and medical history because underwriting is upfront and likelihood of not getting a claim greatly diminished.
2. Beneficiary - With an individual life insurance policy, you name your own beneficiaries. With lender's mortgage insurance, the bank is the beneficiary and collects the proceeds at event of death.
3. Flexibility - With an individual life insurance policy, you have flexibility, you can buy another type of life insurance as your needs and circumstance change. You can convert it into a permanent plan sometime in the future without proof of insurability. Should you pass away untimely, your loved ones can decide what to do with the life insurance proceeds. They may opt to pay off the mortgage or use the money for investments or for something else.
4. Portability - If you change banks when your mortgage is up for renewal, you will have to reapply for mortgage insurance with the new lender. But that time you are either 3 or 5 years older and have to pay premiums based on your attained age. Now, let us say you developed diabetes or hepatitis, your new mortgage lender may not want to insure you. With an individual life insurance policy it is portable. So long as you have an in force life insurance policy it is portable from lender to lender. And your premiums are based on the age when you got the insurance.
5. Level Premiums - You pay level premium with lender's mortgage insurance but the pay out will depend on your amount owing. Remember your balance goes down every time you pay your mortgage. With an individual life insurance policy, the face amount stays the same for as long as the policy is in force.
6. Expiry - The mortgage insurance you get with the bank terminates when the mortgage is paid off. An individual policy can be converted into a permanent policy to cover taxes and your estate after you die.
7. Lower rates - If you are generally healthy and have a good family history you can have individual life insurance for 20 to 25% less than what you can get from your lender.These are seven reasons why an individual life policy is better than lender's mortgage insurance to cover your mortgage. Talk to a qualified and professional insurance broker for a plan that is right for you.
By: Roberto Lloren
About the author: Roberto Lloren is Co-Founder and advisor for Crossroads Financial Solutions Incorporated based in Mississauga Ontario.
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