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CHEF INSURANCE

ARTICLE - MORTGAGE INSURANCE Versus LIFE INSURANCE


BY: THE SUCCESS MANAGER TEAM, THE CHEF ALLIANCE


DATE: FEBRUARY 2021



Whether your offer for a house or condo has just been accepted and you're meeting with your bank to set up a new mortgage or you're negotiating a mortgage with a new lender, there are lots of things to consider.  Irrespective of whether you're buying it alone or with a spouse/partner, have you considered what will happen if you (or your partner) dies?  

When signing the mortgage documents, it's easy to sign up for the bank's mortgage insurance.  But with a little bit of homework there are other, cheaper and more beneficial options, one of which is life insurance.


WHO OWNS THE INSURANCE?  AND WHO CONTROLS IT?


With mortgage insurance the bank is the policy owner.  So if you die, the mortgage insurance is paid directly to the financial institution holding your mortgage.  It is only used to pay off the mortgage balance, and none of it goes to your spouse, loved ones or beneficiaries.  

Many people just don't understand the product as oftentimes it is not explained properly by the bank staff.  Staff may use pressure technique; after all, it is a profitable source of revenue for banks and staff may be incentivized to sell the insurance. 


Some people think they will be denied the mortgage or will be penalized by the bank if they refuse the bank's mortgage insurance.  The bank, however, has no recourse if you refuse their mortgage insurance.

With life insurance, on the other hand, you are the policy owner.  Life insurance benefits are paid directly to your designated beneficiaries (e.g. your spouse, children).  They are in control with the money that is paid out and they decide how best to use the funds - e.g. your dependents may wish to continue to live in a mortgage-free home for as long as they wish by paying off the mortgage, or they can pay down debts, supplement the loss of household income or pay for education expenses.



what if you renew or move your mortgage to another institution?


Any time you extend your mortgage, move your mortgage to another institution or buy a new property you may have to reapply for mortgage insurance coverage.  The premiums that you have already paid over the years are gone.  You receive no benefit or refund from it.

With life insurance, the benefit in not dependent on where you live or who you bank with.  It will stay in effect for as long as you continue to pay premiums.  Some life insurance products have a fixed payment term (e.g. 20 years) and with these, once the pre-set premiums are paid, the benefit to your beneficiaries will continue to grow even though you no longer pay any premiums.




HOW DOES THE LEVEL OF COVERAGE COMPARE?


The amount of your mortgage coverage is linked to the value remaining on your mortgage.  So with mortgage insurance, as you continue to make payments towards your mortgage and the amount of your mortgage decreases, so too does the amount of your insurance coverage.  Your mortgage insurance premiums, however, remain the same.  In other words, with each payment you make to pay down your mortgage, the cost of the mortgage insurance that you're paying gets more and more expensive. 


What is you're lucky enough to pay off your mortgage?  If you pay off your mortgage, the mortgage insurance comes to an end too - and you'll receive no benefit or pay-out for your years of paying it to the bank.  The only winner in this scenario is the bank.

With life insurance the base benefit amount is guaranteed for the life of your policy. So, for example, if the benefits amount is $1,000,000 on Day 1, it will be at least $1,000,000 on the day of payout.  The final payout amount will depend on the type of life insurance product that you buy.  Some products have befits that keep growing until they are paid out. 

The rates for life insurance will remain the same throughout the life of the policy, unless you choose a term life insurance policy.  With a term policy, the premium rates will likely increase at regular intervals; but at any point, you can lower your coverage amount to reduce your premiums.  Not having insurance or lack of sufficient insurance can have some serious financial implications.



HOW DOES THE APPLICATION PROCESS COMPARE?


With life insurance, however, there is usually a more comprehensive underwriting process.  In many cases a medical history may be required from your physician.  Since the life insurance company knows what they are dealing with, and have actuaries who can calculate their exposure and risk, the cost of their products is generally much lower than mortgage insurance.


With mortgage insurance, the application process is fairly simple and there are few underwriting requirements.  Since they don't know your medical history, they don't have a clear picture of their exposure and risk; this is one of the reasons why it is more expensive than life insurance.  For those in poor health, where life insurance premiums may be higher, the bank's mortgage insurance may be the only option available.



Looking for an insurance professional in your area to discuss your options?  We can help by providing a referral to a trusted professional.  Contact a Success Manager.





The Chef Alliance is a leading foodservice association in Canada offering Chefs and Entrepreneurs a place to grow their business.  They can benefit from liability insurance to protect their clients and finances, peer support strengthen their business, discounts to lower their business costs, market their services and increase profits.  This leaves them time to concentrate on what they do best - cook great food!

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