If you or your spouse ever have to use your mortgage insurance, will your claim be denied? If you got it from the bank, there is a distinct possibility that it will.
Mortgage insurance is actually just a life insurance policy based on the value and length of your mortgage. Its purpose is to pay off the remainder of your mortgage if you or your spouse should die. The surviving party then would not have the burden of paying off the mortgage on their own. The benificiary is the bank (not your spouse) and the value of the policy diminishes as you pay down your mortgage.
There are a number of downsides to this type of policy, but the biggest is the uncertainty it presents. There have been cases where clients have paid premiums for years thinking they have valid insurance, but when they have a claim, they are told that they are uninsurable and the claim is denied.
So why would my mortgage insurance company refuse to pay?
When you buy insurance from your bank (mortgage lender) there are a few issues that could wind up in you being denied in the event of a claim.
Bank Mortgage Insurance is Underwritten at Death
This means that the insurance company will only decide if you qualify for the insurance after you have made a claim. This could be after 20 years of paying insurance premiums to them. If your medical history indicates that you may have had issues that prevented you from qualifying all those years ago when you bought the insurance, you could be on the road to being denied.
Because there have been so many people that have been caught by this, post claim underwriting has been banned in some states. In Canada though, it is still the most common method offered by lenders to insure a debt.
No Professional Advice
Your mortgage lender is likely not licensed to sell life insurance. He or she may be quite knowledgable in mortgages, but may not even understand the insurance application forms that they are asking you to fill out. Life insurance is a complicated product, and if you fill out the application incorrectly you could disqualify yourself from being eligible for this insurance. Of course, you won't find that out until a claim has been made. At which point it's too late.
What are My Alternatives
Your best option is to speak with a licensed life insurance professional about a policy to cover your mortgage. Here are all the ways you will benefit:
- Gauranteed coverage
- You and your spouse will be the benificiary, not the bank
- Fixed coverage. You are covered for the full amount, no matter how much you've paid off of your mortgage.
- Good service. If you've ever tried to get a hold of the bank's insurance company, you know you have at least a half hour wait on hold.
- You don't have to do a new, more expensive policy every time you renew your mortgage.
- Lower price. All this and you can probably get a lower rate than what the bank will offer you.
If you currently have mortgage insurance with the bank, you owe it to your family to speak with a life professional today about how to make sure you are actually covered in the event of a claim.
If you have a mortgage that is currently insured by the bank, you might be at risk. Call us today or click below to get started.
We can even help you move your insurance from the bank!
Video: Watch the CBC - In Denial episode that uncover's banks denying mortgage insurance claims when they're customers need it the most.