Mortgage Insurance...Your Second Biggest Depreciating Asset

We all know our cars drop significantly in value the second you drive them off the lot, some say you lose upwards of 20% as soon as you pull out of the dealer. I'm sure most of us are bitter about this however for a lot of us, a car is a necessary utility that we all must have. We all accept the fact that we are paying for something that is guaranteed to drop in value. 

What if I told you that more and more Canadians are out there purchasing another asset that drops significantly in value! It's nothing immediately tangible, but rather a form of insurance called mortgage life insurance.

Let me first explain mortgage life insurance. By law, every time an institution writes a mortgage, they need to offer their clients some form of life insurance to cover the balance of the mortgage. I think sometimes people feel obligated to purchase the coverage through their lender. While you’re not obligated to take mortgage life insurance from your lending institution, I strongly recommend you consider your coverage options.

Unfortunately, when you purchase your mortgage insurance you get through the lending institutions, the coverage is not owned by you. It’s an agreement between the lending institution and an insurance company. You have very little, if any, control over the agreement. If you decide to move your mortgage to another financial institution or even make changes to the mortgage within your own lending institution, the insurance coverage isn't transferable because you don’t own it. It does not move or change with you. This is significant because insurance is not purchased with dollars alone – you must qualify medically. If your health changes, you may find you have much less flexibility with lending institution mortgage insurance. Getting new coverage with a new mortgage may not be an option. With a personal insurance contract, your coverage is not tied to your mortgage in any way. So even if your health changes, you can make decisions on moving your mortgage or refinancing. Plus god forbid anything were to ever happen to you (or your spouse) the lending institution is the beneficiary to that insurance contract! So unfortunately you have no say in how that money is disbursed.

Second, I will talk about that matter of a depreciating asset. With mortgage insurance, the death benefit or amount of insurance decreases as your mortgage decreases. This may make sense to some, however the downside to this is that you are paying a level premium for the length of your mortgage, for that big depreciating asset. What we can see in the illustration below is a comparison between personally owned insurance with a level premium and a level death benefit, compared to mortgage insurance which again has a level premium however has a decreasing death benefit.

With all this being said, I challenge you to look at your policy. Did you take on the institutions mortgage insurance, or were you ahead of the game and took out your own policy? If you would like to learn about your options other than mortgage insurance I ask you to please call me. I will show you the benefits of an individually owned policy and I can also show you many more advantages of owning your own policy. Also, there are options out there where you can actually pay a level premium for an increasing death benefit!! Let me take the time to show you.

I can be reached at (905) 475-0122 x 411, by email at Scott.Loney@Freedom55Financial.com, or you can send me a message in the contact box to the right!

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