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Mortgage and Credit Insurance May Be Costing You Much More Than Necessary, and May Not Pay When You Need It Most

It's everywhere now. Whether our mortgage is insured, or our lines of credit or our credit card balances, or we just get an offer for 'free' insurance from the bank. Life, disability, and critical illness insurance is available just for answering a few questions and ticking a box that says 'yes'. Easy, right? And something we all need, BUT...

Did you know that you are under no obligation to take insurance on your mortgage or line of credit from the bank. But often when they 'offer' it to you, it feels like you have little choice.

Here's an article on the problems with mortgage insurance, and a CBC expose.

Insuring your debts is a good idea, but their insurance is not. The biggest problem is that the bank insurance may not pay as you expect. Another problem is the cost. Add the fact that the amount of insurance declines over time while the premium remains the same, and that you can't move your bank insurance to another mortgage at another institution, and what is easy looks not very worthwhile. Just as an example, compare mortgage insurance from one of Canada's largest financial institutions with standard insurance protection:

Mortgage Insurance—$200,000, declining monthly	Term Insurance—$200,000 level
$50 per month premium Face amount decreases with principal Benefit paid to bank Insurance not likely to convert Must re-qualify should you move your mortgage to another institution	$32 per month premium Face amount does not decrease Benefit paid to beneficiary Insurance convertible to other products Insurance remains with YOU

In short, you could save $5,400 over the life of a mortgage at these rates, and have much better insurance with a level face amount.

Example of how bank mortgage insurance face value declines over the life of a mortgage compared to level term insurance.