Today more than ever … it is important to review your portfolio with regards to insurance.  The average home price in Canada just hit $720,850 (Source: Financial Post December 15, 2021) in November of 2021.  If you thought that the number was a surprise, RE/Max Canada has estimated that the average home sales prices will further appreciate by approximately 9.2% in Canada in 2022.

The most surprising statistic that I read is that 60% of home buyers are purchasing mortgage insurance through their bank.   Why should bank owned mortgage insurance not be included in your portfolio?  Put simply, because the bank is the owner of the policy.   If they are the owner, that means in the event of sickness, or an untimely death, the bank gets paid out and not your family.  So, who is paying for the mortgage insurance again?  You.   So, in other words you are paying for the bank to have mortgage insurance on your home.  And who is benefiting from your death?  Only the bank.

Key points about mortgage insurance from the bank:

• 1. Mortgage insurance from the bank protects the bank (covers the outstanding mortgage balance) and not your family
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• 2. If you change mortgage providers after your term ends to get a better lending rate … you will have to apply for new mortgage insurance (with the possibility of not qualifying for mortgage insurance)
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• 3. Bank owned mortgage insurance is underwritten at the time of a claim.  So if your health changes between the time you applied and at the time a claim, the banks may not have to pay out and you may find out the hard way that you may in fact not have any coverage all the while
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• 4. Mortgage life insurance term ends when your home is paid off or when you switch lenders – whichever occurs first
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• 5. Premiums on a mortgage life insurance are guaranteed to increase every 5 years
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• 6. Going back to point #2, if your health changes at the end of your term or you sell a home (and mortgage is not portable) you may or mayn’t qualify for your bank mortgage insurance when you apply for your new mortgage (as you may need to prove reasonable good health and the cost of coverage per dollar increases in accordance with your age and health at that time)
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• 7. Mortgage insurance from the bank charges the same rate for females and males as well as smokers and non-smokers.  Does that make sense if you are in good health?
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• 8. Another point when talking about rates, with a mortgage insurance plan from the bank, the costs stay the same even when the benefits decrease as you pay down the mortgage amount.  If you pay off your mortgage, there are no funds given to your beneficiaries
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• 9.Costs are 2.8% to 4% of the mortgage amount
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• Benefits of a personally owned policy:

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• 1. You can cover multiple mortgage loans under a personal policy (i.e. for example you own your home and 3 other investment properties)
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• 2. You are the owner of the policy, so in the event of an untimely death you will be protecting your beneficiaries (your family) and not the bank
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• 3. Your family receives a tax-free amount at death (death benefit)
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• 4. Personally owned policies are underwritten at the time of the issue of that policy so it is harder for insurance companies to not payout
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• 5. Insurance money payable under the coverage (tax-free death benefit) can be applied for any purpose, including the mortgage balance (allows your family to pay off the mortgage and stay in their home) and to apply it to all other debts (possibly even allowing your family to be debt free)
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• 6. Premiums remain the same for the length of the term. If you choose a 30 year term as an example, your premiums are guaranteed for the duration of the 30 years or your amortization period regardless of how many times you sell your home or apply for a new variable/fixed term mortgage. More importantly, renewal rates are guaranteed at the onset, and no further evidence of insurability is required if you keep the same policy.
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• 7. Premium rates are based on your circumstances, so the healthier you are the lower your premiums will be
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• 8. Costs are significantly less than the mortgage amount

For the majority of us, including myself; a home is going to be the biggest asset you’ll own.  Your mortgage is the biggest debt you’ll ever take on in your lifetime.  According to statistics, the average Canadian household debt is $1.76 for every dollar of disposable income in 2020. Life insurance can help to pay off the mortgage and any other outstanding debt for pennies on the dollar if the breadwinner were to pass away unexpectedly, saving thousands of dollars in interest payments as well.

In conclusion, there are numerous advantages of applying for life insurance versus mortgage insurance from the bank.  In fact it may be worthwhile to switch (cancel your mortgage insurance) and go with a life insurance policy.  I would also consider a critical illness coverage to cover the mortgage as well (could be paid from the savings from your mortgage insurance).  Should you want to discuss further any of the topics above or have a second opinion on your portfolio, please feel free to call me at 416 882 7462, or email me at admin@dlwealthmanagement.ca.