Financial & Insurance Advice Blog

Two brothers bought for each of themselves the identical houses separated only by a driveway. They each paid the same price, putting down the same down payment and mortgaging the same amount from the same lending institution. You’re probably thinking “don’t they do anything on their own or what kind of childhood did they have”. Nevertheless, the first brother, Allan, checked off “yes” to the little box that asked “do you want mortgage insurance.” The second brother, Bruce, checked of “no” to the same question, a seemingly innocuous question that is answered in 3 seconds with very little thought. Here are the ramifications of that little question.

The first is that Bruce, who checked “no”, can now go to an insurance broker and get mortgage insurance from an insurance company. The insurance company does not care who his lending institution is. Therefore he can change lending institutions to his heart’s content, as many times as he wishes and carry his mortgage insurance with him without any changes – portability. Of course it goes without saying that if Bruce had chosen me as his broker, he would be showing incredible good taste and be rewarded with the best pricing and excellent service.

Allan, who checked “yes”, on the other hand can also change lending institutions as he wishes. However he would have to take out new insurance with new each institution. As insurance is priced by attained age, therefore he would end up paying more with each change as he grew older, assuming his health stays the same.

The second ramification is price or premium. Insurance companies will reward you with lower premiums for not smoking and a healthy lifestyle. Lending institutions have one price which is akin to rates for a smoker.

Third is that lending institutions will insure only the mortgage with them as the beneficiary. As your mortgage goes down, so does the amount you are insured for but not the premium or the price you are paying –declining balance. With an insurance company, the coverage and the premium stay the same regardless of what happens to your mortgage, with whoever you designate as beneficiary. What this means is that should you pass away having a mortgage, a lending institution would tell your heir “the mortgage is paid up.” “Thank you very much , however there may be a small penalty of 3 months interest because your loved one died in the middle of the term and not at the end.” You think you could have planned things better, not to die midterm of your mortgage!

On the other hand, the insurance company will issue a cheque for the total coverage you had taken out payable to your beneficiary. Your beneficiary has the option to invest the insurance proceeds and continue monthly mortgage payments or pay off the mortgage balance. This is you and your beneficiary controlling your finances.

Fifth, the insurance company will underwrite (approve your health and status) at the time you apply. The lending institutions will underwrite you when you make a claim for the insurance money. Now we all know that health deteriorates as you age, sometimes faster, sometimes slower. Wouldn’t you want to know that everything has been taken care of when you are healthy and younger than waiting until something terrible has happened in the future when health may be questioned?

Lastly, wouldn’t you want to deal with one experienced person and one phone number than a clerical position with someone who changes every 6 months who does not know you from Adam.

That little box at the end of the mortgage insurance question is very important. Mark it “no” and give me a call.

I want to be known more for the problems I solve than the products I sell.