Mortgage Blog

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Understanding Life Insurance

February 18, 2019 | Posted by: Ask Ana Cruz

Understanding the value of Life Insurance vs. Creditor Mortgage Insurance

The goal of this article is to understand the value of what life insurance can provide for one’s family if someone unexpectedly passed away.  If you could explain to someone the definition of what life insurance is in one word what would that be?  Unfortunately, if we cannot explain the true value of life insurance for a 5 year old to understand, then we did not do a good job in explaining.  This is why it is important for everyone reading this article moving forward think of life insurance as MONEY.  We should all ask ourselves this important question:

 How much MONEY does my family need if I were no longer here today?  

It is also important for everyone to understand that life insurance is in-essence MONEY at a DISCOUNT TAX-FREE.  Therefore, going back to that question, we need to now ask ourselves; 

HOW MUCH MONEY TAX-FREE does my family need if I were no longer here today?

Now, if knowing that we have the opportunity at obtaining TAX-FREE MONEY for pennies on the dollar, would it make sense for someone to pay a higher price for something, knowing that this person can get the same thing at a discount GUARANTEED, if all that person had to do was make an effort and look elsewhere?

Unfortunately, this is the case each and every day as thousands of Canadians tend to pay a higher price for creditor mortgage insurance rather than obtain their own individual life insurance at a significant discount and actually own that policy for them and their families.  One of the main reasons for this is that many of us are not properly informed of the major differences between Life Insurance vs. Creditor Mortgage Insurance as they are either sold based on CONVENIENCE or the notion that it is EASY to purchase since they are signing off on their mortgage documents at the same place and time.  Having a “one stop shop” approach is what makes the financial institutions one of the leading companies in selling creditor mortgage insurance based on trust, loyalty and most importantly because the consumer does not realize what other options exist for them. 

The purpose of this article is for everyone to understand the differences of OWNING Life Insurance (Personal) vs. RENTING Life Insurance (Creditor Insurance).

Many Canadians own a Creditor Life Insurance Policy that was purchased from the bank or financial institution, when they applied for their mortgage. They probably purchased it for themselves and their spouse, probably without shopping around, or asking how many policies or plans, the Financial Institution could offer.

How does buying a Mortgage Life Insurance, differ from someone buying their first car, electronic devise or most importantly their first home that they see? I believe it is safe to say that we do not know any consumer expert who would recommend NOT checking out the market for that particular product before making their purchasing decision.

The result in most cases of not shopping around, or not having a big window on the market is - paying too much, and / or not getting good value. And it is no different with your Mortgage Life Insurance.

So what is Creditor Insurance?

Creditor Mortgage Insurance is an insurance policy that is issued through the financial institution. Most of the time, you may not even know which life insurance company actually underwrites the life insurance.  As the borrower of the mortgage, you do not own the policy, you rent it for the length of the loan and you have to pay for it!  

This can only be sold to you since you OWE the institution/lender MONEY.  The creditor insurance can insure only what you owe to them and never a dollar more.

The important thing to understand is that each creditor insurance policy is issued with a master policy, with full complete wording including all terms, conditions and exclusions.  Do you even know what the exclusions are in the policy? What are the true features and benefits of this policy?  Unfortunately, many people are paying into such a policy, not fully realizing the full extent of the coverage and how it works.  The consumer is paying for this policy in which the institution/lender has the right to change the policy and conditions of the agreement at anytime as they are the owners of the policy!

Why Individual Life Insurance?

When purchasing an individual Life Insurance policy to protect the mortgage debt, you OWN it and CONTROL the policy.  You can then retain the policy, not only for the time frame of the mortgage, but you can decide for how long you want this coverage in force even if the mortgage is fully paid off.  This can be for as long as to AGE 100, or any other length that you choose.

You need to understand that life insurance is not like home and auto insurance where you can insure your home or auto at any time as the insurance company only asks for your location or make/model and year of your car.  Unfortunately, many people think that they can insure themselves at anytime.  Many of us tend to want the insurance when we can no longer obtain it.  Rather, it is extremely important to try and obtain life insurance while we are young and healthy as the cost is much cheaper. 

It does not matter how old someone is, our health is probably one of the most important things in life.  We tend to take for granted our health and the scary thing now a days is that one day we can be healthy and the next day we may not. Each day, thousands of Canadians are diagnosed with life threatening illnesses and for this reason, it is important for us to realize this and knowing that we could be uninsurable at some point in our lives, it makes it even more important to obtain life insurance for you and your family as soon as possible.

The most important feature for anyone that owns an individual life insurance policy is that, not only do you OWN the policy, at any point in time if the individual’s health is no longer in good standing, the insurance company has to base your health from when you first applied. Therefore, no matter what, as long as you own your policy and it is still in force, the insurance company honours your health back from day one and has no CONTROL in making any changes or cancelling the policy on you.  This becomes the most valuable asset someone can ask for in this type of situation.

Being that your health may be taken away from you tomorrow, you need to ask yourself this question:

If you know that today was your last chance to buy life insurance, how much MONEY would you buy at a DISCOUNT for your loved ones?

We tend to realize just how important life and our health really is when we suffer a lose such as a loved one.  While losing your insurability for insurance purposes may not seem as important in life compared to losing a loved one, this could be the biggest difference in life between OWNING an Individual Life Insurance Policy, that can GUARANTEE the continuation of your family choosing to own their home or not.

As you are reading this article, there is a good chance there is no urgency for you to look into applying for life insurance today, but the time the buy it is NOW while you are still healthy.  The time to buy it is when you DO NOT NEED IT, because that is the ONLY time you will have the opportunity to BUY IT!

For more information on understanding ALL the advantages of Personal Life Insurance vs. Mortgage Insurance or for a full review of your current situation, you can contact me via email at : peter@graceffagroup.com905 902 5188 or contact Ana Cruz to schedule an introduction.








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