Mortgage insurance vs life insurance - which one provides the best protection?
Prudent financial planning has never been more important than it is now. In our recent Integrated Planning video series, WealthCo’s Vice President of Insurance Advisory, Jeff Dyck, a proud member of the Integrated Advisory Network, takes us through the integrated approach to financial planning. Below is a synopsis of his insights.
Exploring Alternatives to Mortgage Insurance
When purchasing a home, your lender will invariably offer mortgage insurance. However, did you know there is another option to ensure your mortgage and debt are protected in the event of death or disability? Homeowners have the option to secure traditional term insurance, which is often overlooked by many Canadians with mortgages.
Why Term Insurance Offers Better Value Than Mortgage Insurance
Banks often offer mortgage insurance as a seemingly simple and convenient option, obtained quickly without the need for medical underwriting or additional paperwork. However, a crucial distinction is often overlooked: the bank's mortgage insurance primarily serves to protect the bank's interests, not the homeowner's. The coverage amount gradually decreases over time, following the mortgage balance, while the insurance premium payment remains fixed. This means that although you may start with coverage for the full mortgage amount (e.g., $350,000), it eventually diminishes to zero.
In contrast, traditional term insurance provides coverage for the specified amount (e.g., $350,000) throughout the entire term of the mortgage. Premium payments in the brokerage market are generally lower compared to the bank's mortgage insurance. Moreover, with term insurance, homeowners own the coverage, and the payout goes directly to the beneficiary (e.g., family) in the event of death. The excess amount above the mortgage debt can be utilized by the family however they choose.
The Wiser Choice: Term Insurance
It’s crucial to know your options when it comes to protecting your mortgage and your family. The bank’s mortgage insurance is ultimately owned by the bank, has fixed premiums, and provides decreasing coverage as your mortgage is paid down. By comparison, traditional term insurance is owned by the homeowner, the coverage remains constant regardless of the mortgage balance, and the premiums are typically lower. By understanding these differences, you can make more informed decisions about your mortgage insurance needs.
At WealthCo, we are committed to helping you navigate your financial planning with confidence and clarity. Contact us today to learn more about how term insurance can provide superior protection for your mortgage and your family's financial future.
The Integrated Advisory Network consists of progressive CPA firms, along with best-in-class professional advisors, service, and product specialists, who work together to deliver an elevated and holistic client experience. One that optimizes both their personal and professional lives with an integrated financial strategy designed to help their clients reach their goals. Reach out to your Integrated Advisory accountant if you have any questions or want to have a deeper conversation about your financial plan.