Mortgage Life Insurance may provide false security
When times get tough people start looking over their shoulder for security. Love it or hate it insurance in its many forms is a form of security. One type of insurance that is great cause for concern is creditor insurance. Creditor insurance is expensive and is post underwritten which can cause confusion, pain and a false sense of security.
Creditor insurance should be avoided if a personal insurance policy can be purchased in its place. Post underwriting means that when a claim is made, an insurance company then begins the process of finding out whether the insured qualifies for the insurance. This type of policy should be abolished. The underwriting process should always be completed at the outset of the persons need for insurance, not when a claim is made. Most if not all creditor insurance is post underwritten. This includes the mortgage life insurance and critical illness insurance that you may have purchased when acquiring your mortgage.
Actual case: A man and wife owned their home for many years. When obtaining their mortgage they purchased mortgage life insurance. At some point Mrs. X developed cancer. Later and not realizing how this would affect the purchase of a new home Mr. and Mrs. X acquired a new mortgage amount along with new premiums for the mortgage life insurance. Someone at the bank slipped up and did not actually re-do the mortgage insurance policy – they just increased the premiums and the amount of the life insurance to account for the increase in the mortgage amount. According to the bank these people were good bank customers with a long history. However, good bank customers do not necessarily equate to good insurance clients. Notwithstanding the question of intimidation, bank employees are looking out for the best interest of the bank – and rightly so, not the best interest of the customer. Applying for a loan is not the place to acquire insurance of any kind.
The cancer reared its ugly head and Mrs. X died. When Mr. X made a claim for the mortgage life insurance, the claim was denied – due to a pre-existing condition. We don’t have enough space here to deal with the rights and the wrongs of this situation, but suffice to say that if Mr. and Mrs. X had originally purchased a personal term life insurance policy with an appropriate amount sufficient to pay all debts, the husband would not have had his denied claim.
If you would like more information on creditor insurance contact me at jim.kew@kewcorp.ca. I will forward a short video free of charge on a creditor insurance study completed by CBC’s Market Place.
Red Adair had a favourite quote: If you think hiring a Professional is expensive – wait until you hire an amateur.
James Kew is a Financial Planning Professional in Sherwood Park at 1 -800-810-7526. All Financial Planning advice should only be undertaken after consultation with a Financial Planner who is a member of Advocis or the Canadian Association of Financial Planners.