Real World Example of Bad Bank Mortgage Insurance

Mortgage Life Insurance from Canadian Banks is a waste of money

Again I want to rant about how bad the bank’s mortgage insurance is. It is a terrible product that is far too costly for consumers and is really just a big money-maker for the bank.

Yesterday I had the pleasure of helping a couple get rid of an overly expensive bank mortgage insurance plan and save them over $70 per month. I am not at liberty to say which bank these clients were dealing with or any personal information about my clients. Let’s call them Bob and Mary, and the bank as Big CND Bank. Here is the case:

Shopping for better rates on the internet

My clients found my website, Life Guard Insurance, when shopping for life insurance to replace their expensive mortgage insurance from Big CND Bank. They had recently moved to Calgary, AB from a major Canadian city in the east and had recently moved into a newly built home. Bob and Mary’s mortgage is about $500,000, not unusual for a home in Calgary.

Because Bob (mid 40s) and Mary (early 40s) are middle age, they don’t fit into the bank’s prime target age for mortgage life insurance, and so the premiums are starting to rise rapidly. The premiums are based on the oldest person’s age, so in this case it is a middle aged male plus spouse. This could be anyone who is moving houses or upgrading to a new property in their 40s.

Bob told me he was paying the mortgage weekly and the bank’s premium for mortgage insurance was about $45 per week. That works out to $2,340 annually, or $195 per month.

What does their $200 per month mortgage insurance cover?

Bob and Mary had their home covered for loss of life. It was a joint first-to-die life insurance policy that would pay out the remaining balance of the mortgage if one of them were to die. Then the policy would end.

Currently they are covered for $500,000 but as they pay down their mortgage their life insurance coverage will decline. However, the premiums for the mortgage insurance will remain level – at almost $200 per month.

Also, there is no actual cash payout to the family. The bank would be paid the cash from the mortgage insurance death benefit, and then payout the mortgage and give the survivor 100% ownership of the home – mortgage free.

I don’t know about you, but I can’t eat the house or pay utilities with a paid off home. The surviving family might have to re-mortgage the home or sell it if they can’t afford the upkeep on the home.

The Solution – personal life insurance with some extras

I was able to provide them with an excellent solution from Manulife Financial. We used a Term 20 policy that locks in the premiums for the next 20 years. After 20 years the mortgage will be very small or paid off and all children will be grown up – so not much financial risk left. If nothing has happened to them they can cancel the policy.

The Manulife Combined Term 20 policy was able to cover both Bob and Mary for $500,000 EACH – double coverage. If one person dies the $500,000 is paid out and the survivor still has their $500,000 life insurance policy. In the event of a joint disaster, Manulife will pay out $1 Million to their children.

They were also able to afford to add Child Protection riders for their 3 children at a total cost of $7.50 per month extra.

The base premium for the $500,000 term 20 coverage was $123. 38 – saving them about $72 per month over their mortgage insurance. The extra $7.50 to give insurance to their children brought the total cost of the policy to $130.88 per month.

This life insurance is level coverage for a level premium. That means the premiums stay at $130.88 per month for the next 20 years and the coverage remains at $500,000 each over the next 20 years (plus the children are covered until age 25, when they can take out their own life insurance policy – no medical questions asked).

After 20 years Bob and Mary could renew the insurance, but the price does go through the roof. It is designed to cover them while they pay down their mortgage. If they wanted to, they could convert this policy into permanent life insurance coverage for their estate needs sometime down the road.

At least with personal life insurance you know what you’re getting. You can save money and make sure that if something happens your family gets the death benefit – not the bank. The death benefit will remain $500,000 each over the full 20 years. Even if the mortgage is only $200,000 in the future the personal life insurance will pay the full covered amount ($500,000), and the family will have extra cash to offset things like income loss and final expenses.

Have your bank’s mortgage insurance re-evaluated

If you are currently insuring your mortgage through the bank, you should get a second opinion. It just makes sense – get something that brings much higher value for a lower cost. Contact Life Guard Insurance today to see if you can save money on your mortgage insurance by switching to personal life insurance.

The article was written by +Mitch Reynolds. If you found this article interesting or it made you think, please feel free to share your comments below. Liking us on Facebook, giving us a +1 on Google or Tweeting this article about bank’s mortgage insurance in Canada getting worse would also be very much appreciated.

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