A Deeper Look at Creditor Insurance vs. Personally Owned Life Insurance

First-time homebuyers are bombarded with paperwork, one of our millennial clients described the process of “jumping off the cliff into adulthood”. They needed to gather Notices of Assessments, paystubs, employment letters, bank statements, apply for CMHC, finalize the negotiations, and sign to seal the deal. When the lender offered them mortgage insurance, they came to us for advice and we offered them the following input for considerations.

Decision Factor: Critical

If you were paying for an insurance policy, wouldn’t you like to decide who gets the proceeds? From this viewpoint, personally owned life insurance makes much more sense!

Decision Factor: Rates

Are you in good health? Personally owned insurance is medically underwritten when you apply for it. Based on your health and/or smoking habits, you may actually qualify for cheaper insurance where the premium is locked in for a specific term, usually the term of your mortgage – so you know you are covered!

Decision Factor: Flexibility

Flexibility is key with insurance. We all know that “life happens”. Sometimes you don’t pay down your mortgage as quickly as you desired or sometimes you a family member becomes ill for an extended period of time. Did you know that as you pay down your mortgage, your creditor insurance covers you for less than what you started? If you are in your last year of your mortgage, coverage may only be for $5,000 or $6,000, but you’ll be paying the same premium as someone who has a $330,000 mortgage. If something happens in the last year of your mortgage and you have personally owned insurance, you can have some peace of mind knowing that you are covered for what you applied for.

Verdict:

Ultimately, personally owned insurance gives you control, flexibility and peace of mind with your policy. It’s the clear winner here.