Lifestyle

A close look at mortgage insurance

Buying a home? Renewing an existing mortgage?

In either case, there's something you need to consider.

What happens to your home if you should become incapacitated or die? Would your family be able to stay in their home?

Most lending institutions offer mortgage insurance when you arrange a mortgage with them and it's the 'easy' way to get coverage. But before you say yes, here are a few things to think about.

• The lender's representative who arranges your mortgage is usually not licensed to sell insurance products and cannot provide you with advice or guidance with respect to the insurance or provide guidance in answering the questions on the enrollment form for mortgage insurance.

Here's what can happen and has been documented in some cases: On the mortgage insurance form, you are asked to answer some general questions about your health and you do so to the best of your ability without realizing that your answers may not provide the full disclosure the insurance company needs.

For mortgage insurance, the underwriting (the process of choosing who and what the insurance company will insure) is done at the time of a claim – so while you may believe you are covered, at the worst possible time, that coverage can be uncertain.

• A policy obtained through a lending institution has no cash value and benefits are paid directly to the lender not to your beneficiaries at a time when the money may be required the most.

• Premiums can be raised or the policy cancelled at any time.

• Your lender owns the policy so if you decide to move to another lender for a better interest rate or for a new mortgage on a new home, you would have to re-qualify medically for coverage, maybe for higher premiums, or you may no longer be eligible for coverage.

• Your coverage decreases as the mortgage is paid down but your premiums remain the same so the cost of your insurance actually increases as your coverage decreases.

• There is absolutely no coverage when the mortgage is paid off.

There's no doubt insurance is necessary protection for you home and family. But before making the decision, look at other options like getting the coverage you need with a personally owned life insurance policy.

J. Kevin Dobbelsteyn is a certified financial planner with Investors Group Financial Services Inc. His column appears every Wednesday.

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