Life Insurance
What Does Your Mortgage Mean To You?
What are you protecting when you insure your mortgage?
When a family or individual borrows money from the bank to finance a home, be it a traditional mortgage or home line of credit, they are going into significant debt for their home ownership. It would be nice if we could all save up the $300,000 to $500,000 to buy a home in Canada, but that would take too long. We Canadians want it all right now – the big house, nice cars, all our electronic toys, etc. This has led to a culture of debt – we borrow to have the things we want today.
There is Good Debt and Bad Debt
When borrowing money, we’ve all heard the term good debt and bad debt. This basically means that the purpose of our borrowing will either create value or create additional cost. For instance, if you borrow money to buy a car, and that car allows you to accept a higher paying job further away from home because you can now commute to work, this is good debt. If you borrow money to buy a very expensive sports car or big truck which has no practical purpose (just for fun or show) this is bad debt, because the interest on the loan has no real purpose. It just adds cost.
Generally home buying and mortgages are good debt. So long as you can afford the mortgage payments now and in the long-term, a home not only retains its value, it increases its value over time. The interest you are paying on the mortgage can be very costly, but you are also paying off the principle in the home, and building value. Considering that you would need a place to live anyway, you have three choices: 1) Rent; 2) Buy with a Mortgage; 3) Buy with all Cash Down. Since most people can’t afford to buy a house for cash, they really have only two choices. Renting is a pure cost and brings no long-term value. It only provides the home and shelter you need. A mortgage gives you the home and shelter PLUS builds value, in exchange for paying an interest rate on the money loaned to buy the house.
Are you Insuring your Mortgage?
When taking out a mortgage with a bank or other lender, they will invariably offer you a mortgage life insurance policy. Firstly, insuring the very large debt of a mortgage is a good idea, and everyone should have their debts covered in case a bread-winner or caregiver in the family dies prematurely. That being said, there is good life insurance and bad life insurance! The bank’s mortgage life insurance policy falls into the Bad Life Insurance category. And here’s why:
- The bank owns the policy.
- The bank controls the policy and will cancel coverage if you leave them for another lender.
- The bank is the 100% beneficiary of the policy – your family gets $0 cash.
- It’s the bank’s risk that needs to be insured – they lent you the money.
- The policy is a declining benefit with a constant premium – as you pay off your mortgage you have less and less life insurance but your payments remain the same.
- You’re paying the premium for the bank’s life insurance plan!
There is a far better option to having the bank’s mortgage life insurance policy – personal life insurance. Owning a personal life insurance policy is far better for the following reasons:
- The cost of term life insurance is usually cheaper than the bank’s premium rates.
- You can cover off more than just your mortgage – you can protect your family’s lifestyle too.
- You can lock in premiums for a long time, like 20 or 30 years or even for life.
- The life insurance benefit does not decrease as you pay off your mortgage.
- Your family receives 100% of the death benefit as a tax free cash payout, which gives them options.
- You can take your personal life insurance with you where-ever you go, even if you leave Canada.
- You can choose to have a policy that is similar to buying a home, with a cash value and eventual ownership of the full life insurance benefit.
Are you insuring a debt or protecting your family’s lifestyle?
The question to me is what are you protecting? If you’re only focused on a debt, and making sure the debt is paid off, then I guess you can stick with the bank’s mortgage life insurance policy. It might be a little more expensive than personal life insurance, but it is convenient to buy. But, if your home represents more than just a debt; if it represents your family’s life, a place of love, a place to build a future and fulfill your dreams, then you are protecting far more than the bank’s debt. You should be focused on protecting the future hopes, dreams and lifestyle that your family has, and that requires proper life insurance planning with a qualified and licensed life insurance professional.
If you would like to discuss your family’s life insurance needs, and compare personal life insurance to the bank’s mortgage life insurance policy, please contact us today. We would be happy to provide you with a free, no obligation quote and financial needs assessment to make sure your family is properly insured.
What Does Your Mortgage Mean To You?
What are you protecting when you insure your mortgage?
When a family or individual borrows money from the bank to finance a home, be it a traditional mortgage or home line of credit, they are going into significant debt for their home ownership. It would be nice if we could all save up the $300,000 to $500,000 to buy a home in Canada, but that would take too long. We Canadians want it all right now – the big house, nice cars, all our electronic toys, etc. This has led to a culture of debt – we borrow to have the things we want today.
There is Good Debt and Bad Debt
When borrowing money, we’ve all heard the term good debt and bad debt. This basically means that the purpose of our borrowing will either create value or create additional cost. For instance, if you borrow money to buy a car, and that car allows you to accept a higher paying job further away from home because you can now commute to work, this is good debt. If you borrow money to buy a very expensive sports car or big truck which has no practical purpose (just for fun or show) this is bad debt, because the interest on the loan has no real purpose. It just adds cost.
Generally home buying and mortgages are good debt. So long as you can afford the mortgage payments now and in the long-term, a home not only retains its value, it increases its value over time. The interest you are paying on the mortgage can be very costly, but you are also paying off the principle in the home, and building value. Considering that you would need a place to live anyway, you have three choices: 1) Rent; 2) Buy with a Mortgage; 3) Buy with all Cash Down. Since most people can’t afford to buy a house for cash, they really have only two choices. Renting is a pure cost and brings no long-term value. It only provides the home and shelter you need. A mortgage gives you the home and shelter PLUS builds value, in exchange for paying an interest rate on the money loaned to buy the house.
Are you Insuring your Mortgage?
When taking out a mortgage with a bank or other lender, they will invariably offer you a mortgage life insurance policy. Firstly, insuring the very large debt of a mortgage is a good idea, and everyone should have their debts covered in case a bread-winner or caregiver in the family dies prematurely. That being said, there is good life insurance and bad life insurance! The bank’s mortgage life insurance policy falls into the Bad Life Insurance category. And here’s why:
- The bank owns the policy.
- The bank controls the policy and will cancel coverage if you leave them for another lender.
- The bank is the 100% beneficiary of the policy – your family gets $0 cash.
- It’s the bank’s risk that needs to be insured – they lent you the money.
- The policy is a declining benefit with a constant premium – as you pay off your mortgage you have less and less life insurance but your payments remain the same.
- You’re paying the premium for the bank’s life insurance plan!
There is a far better option to having the bank’s mortgage life insurance policy – personal life insurance. Owning a personal life insurance policy is far better for the following reasons:
- The cost of term life insurance is usually cheaper than the bank’s premium rates.
- You can cover off more than just your mortgage – you can protect your family’s lifestyle too.
- You can lock in premiums for a long time, like 20 or 30 years or even for life.
- The life insurance benefit does not decrease as you pay off your mortgage.
- Your family receives 100% of the death benefit as a tax free cash payout, which gives them options.
- You can take your personal life insurance with you where-ever you go, even if you leave Canada.
- You can choose to have a policy that is similar to buying a home, with a cash value and eventual ownership of the full life insurance benefit.
Are you insuring a debt or protecting your family’s lifestyle?
The question to me is what are you protecting? If you’re only focused on a debt, and making sure the debt is paid off, then I guess you can stick with the bank’s mortgage life insurance policy. It might be a little more expensive than personal life insurance, but it is convenient to buy. But, if your home represents more than just a debt; if it represents your family’s life, a place of love, a place to build a future …
Procrastination Can Kill Your Chances of Buying Life Insurance
Life Insurance is here today, gone tomorrow
If you’re like most people, the idea of buying life insuranceseems like a chore – something that is easily put off until tomorrow. Well, for the procrastinator in all of us we know that tomorrow never comes. It’s a funny thing that we all put off important things for “another day”, especially when they seem uncomfortable or costly. Buying life insurance can be both – a discussion about what will happen to your family should you die prematurely and having to pay an ongoing monthly premium. There’s two good reasons to procrastinate when buying life insurance.
Unfortunately, this type of procrastination can lead to some very unfortunate outcomes. Let’s examine the two big ones.
Life Insurance gets more expensive as you age
Some people put off buying life insurance for years and years. I am presently going back and phoning some of the people who contacted Life Guard Insurance over 2 years ago requesting quotes and information. For those whom I never connected with or who never bought insurance, almost 50% never bought anything and are still “thinking about it”.
Every year you age life insurance gets more expensive. This is usually about a 4 – 5% increase of premium each year. When you’re young, and life insurance is relatively cheap, this doesn’t seem to make much difference. But, as you age these annual premium increases can far exceed your income growth and make life insurance unaffordable. Many people who wait too long to buy the life insurance they need often have to settle for a smaller amount of coverage because they just can’t afford the premium for the insurance they should have.
Let’s look at a 5 year delay in buying life insurance, and how big a difference it makes on premiums. For our example we will have two people, both male, both non-smokers, aged 30 and 60. The 30 year old needs $500,000 of coverage, and procrastinates in buying it for 5 years, while the 60 year old needs only $200,000 coverage and he too procrastinates for 5 years. They are both buying 20 year term policies.
30 Year Old – Premium today is $37.68 per month. At age 35 the same policy will cost $40.24. That is a percentage increase of only 6.8% over 5 years. Very low!
60 Year Old – Premium today is $209.88 per month. At age 65 the same policy will cost $314.28. That is a percentage increase of 49.7% over 5 years. The cost of waiting is Very High!
As you can see, the cost of procrastinating when buying your life insurance increases dramatically as you get older.
Life Insurance is bought with health, not dollars
The one thing most Canadians don’t realize is that life insurance can only be bought when you are health enough to qualify for coverage. If your health changes for the worse, like a diagnosis of cancer, there is not way you will qualify for life insurance coverage. It would be like trying to buy home owner’s insurance while you’re watching your house burn down. It’s just too late.
So many times I have been contacted here at Life Guard Insurance by a person who is desperately trying to find coverage after they received bad news from their doctor. And in every case like this the person has told me they always meant to buy life insurance, it’s just that they never got around to it.
There are two outcomes when you are diagnosed with a health condition:
- 1. You will receive a rated policy, meaning you are no longer healthy enough for standard rates and must pay extra for your life insurance. This extra amount could be as low as 50% more and as high as 250% above standard rates.
- 2. You could be postponed, meaning the diagnosis is too recent and the life insurance company wants to wait and see how treatment and/or recovery will look like in a year or two. The insurance company is not saying no, just not right now. They might still decline coverage in the future, but if things look good then they will likely offer a rated policy.
- 3. You are declined for coverage, meaning you are now too high a risk for life insurance and the life insurance company will not take you. Most declines are permanent in nature, so the insurance company doesn’t want to ever see an application from you again.
This is why you should not procrastinate when buying life insurance. Firstly, the cost of life insurance automatically goes up every year you get older. Secondly, you might become uninsurable or be a rated risk and have to pay a lot more for coverage. Both scenarios are less favourable …
I’m Excited to Sell Insurance. Are You Excited to Buy It?
Life Insurance: Probably not the most exciting purchase you’ll ever make
I don’t think I’ve ever met anyone who rolled out of bed saying, “This is a wonderful day – the day I buy Life Insurance!” I know that your insurance broker (counting myself among the group of life insurance brokers) is probably a lot more excited about selling you a policy than you are about buying one. And not just because of the commissions he/she will earn on the sale. Your broker understands how proper financial risk protection can benefit a family, how permanent life insurance can offer “investors” a rich and tax sheltered cash value, and how a person’s and family’s future can go on, no matter what life throws at them. We brokers have internal rewards and motivation to sell life insurance policies – not just commissions.
Does buying life insurance make you feel good?
When you purchase life insurance it should make you feel safe, secure and confident you have protected the one’s you love. That should make you feel good. Also, setting aside financial worries, like worrying about what would happen to your family if you died, is also a relief. Once your life insurance is in place you can have peace of mind and those worries are resolved.
Still, getting life insurance isn’t an exciting purchase. It’s not like shopping for a new sports car, or booking that exotic vacation you’ve always dreamed of. Those things are exciting purchases – and they can bring real joy to your life. Unfortunately, life insurance just feels like another bill you’re paying for each month. Something that could be avoided if you turned a blind eye to the possible risks to your life and the financial reality your family would face without your support or income. You can choose to be without life insurance. Sure! I’m not saying it’s a wise thing to do – but you can go without it.
When your family claims on your life insurance policy, that bill suddenly become the wisest investment you ever made!
Being financially responsible has its own rewards
While the process of buying life insurance is not the most fun, the rewards of having a policy that protects your family are great. You know that the tax free money paid from your life insurance policy will be a HUGE relief to your spouse and kids if anything were to happen to you. You’ve set up a plan that will look after their daily needs for years to come, when you are no longer there to provide for them. Making sure the mortgage is paid off, bills are paid, food is on the table, money is set aside for emergency expenses, that children can go to college or university, and your spouse won’t have to sell the house to make ends meet is why we buy life insurance. It’s a good feeling! It’s your way of saying, “I love you and I will protect you.” even beyond the grave.
Now, let’s be prepared. Buying life insurance is actually a slow and sometimes annoying process. Here are the steps to go through before you have a policy:
- Meet with an insurance advisor/broker and discuss the “what ifs” around your death and mortality
- Have a paramedical exam – with needles, urine specimens, height and weight measurements, etc.
- Wait about 6 weeks for the underwriter to make a final decision
- Meet your insurance advisor again to accept your life insurance policy
Not fast, and not what most people would call A Good Time, but necessary. At Life Guard Insurance our advisors help take the stress out of this process. We can discover exactly how much life insurance you should have, find the most competitive premiums in Canada for you, keep you informed all throughout the underwriting process, and finally be your trusted insurance advisor for years to come.
Contact us today for a free, no obligation quote and/or financial needs analysis to see how much life insurance you need. We would love to help you and become your trusted insurance advisor.…