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Posted: May 3, 2015

Don’t take for granted you have mortgage life insurance

ColinCampbellBy Colin J. Campbell

You may think your mortgage is insured against your premature death. But if you bought what the bank was selling you may not have coverage.

A recent Globe and Mail article by Rob Carrick, one of the country’s leading financial journalists illustrates the point. Carrick is saying what many advisors have long believed about mortgage life insurance. He labeled mortgage life insurance “a junk product.”

Mortgage life insurance was in the news recently after Stoney Creek resident, Christopher Massa’s death. Massa’s mortgage and mortgage life insurance was with Scotia Bank when he was diagnosed with lung cancer. After his death, the bank denied the claim on his $289,000 mortgage “because he was not eligible for insurance coverage based on his health condition.”

“Banks are hyper-aggressive in selling this junk product, and some mortgage brokers are getting into the act,” Carrick writes.

As Carrick says the situation the Massa family faced can be avoided, “Buying insurance to pay off your mortgage if you die is a great thing to do for your family. Just buy it from an insurance company with competitive rates on term life policies. The coverage will be cheaper than a bank-sold policy, and you pick the beneficiary. If you buy coverage from a bank, the bank gets the money should you die unexpectedly and your family has no say in how it’s used.”

You do need a financial advisor to assist you with the purchase of quality term coverage, you may need to have a para-medical depending on the amount of coverage but most companies will issue up to $249,999 without a medical. An independent insurance broker will shop around and get the best rates. For example, the $289,000 the Massa’s needed, assuming they are age 35 non-smokers would cost about $35 a month. That is a 10-year renewable term policy with a reputable Canadian Life insurance company that guarantees to pay regardless how death occurs.

Don’t take it for granted you have mortgage insurance; take some action today to protect your family. It’s easy to procrastinate but it can be devastating to your family as the Massa case illustrates.

That is only one of many you don’t have to go to Ontario to find a case of the banks denying coverage on mortgage insurance, it has probably happened right in your neighborhood. You don’t hear about the horror stories of lost homes by bank foreclosure because the mortgage insurance was that junk insurance that your local friendly banker sold you.

Colin J. Campbell, CLU, CH.F.C. CFP, is managing partner of Guidance Planning Strategies Ltd in Cranbrook. He can be reached at [email protected]

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