Debt and mortgage insurance

What you might not know could turn out to hurt you

When my wife and I bought our first house, our bank offered us mortgage insurance. It sounded like a good idea. We had never purchased insurance before or even thought that much about it. But we thought about the consequences of either of us passing away unexpectedly and agreed that it was a worthwhile precaution. And it seemed like a good deal. We were young and the cost seemed quite reasonable.

As I look back now though, after many years as a financial advisor, I see things somewhat differently.

While the monthly premium may in fact have been reasonable, it was by no means cheap when you consider how much interest you could save if you applied that extra amount directly to your mortgage.

Don’t get me wrong — I still think it is important to have insurance if you have a mortgage.

But I also believe that it is worthwhile to consider alternatives.

What I now know is that there is a better way: rather than bank mortgage insurance, consider buying your own insurance.

In addition to potentially saving you money, there is the issue of what would be covered in the event of your death. In the initial years of the mortgage, the benefit would be substantial as it would cover the entire outstanding balance of the mortgage. But over time, any potential payout would diminish as the mortgage balance decreases.

There are additional factors to consider with respect to bank mortgage insurance: premiums go up with age; the amount of the insurance may be inadequate (especially for families); the bank is the beneficiary of the policy (rather than your spouse, for example); and in the event of moving your mortgage to another institution, you lose coverage and possibly the ability to be covered (if there are health problems).

Today I rarely recommend bank mortgage insurance to my clients.

Instead I help them determine their overall need for insurance and recommend that they buy their own.

There are many advantages: you can choose the amount; you can lock in the premiums for a specified term or even indefinitely; you can choose a beneficiary rather than everything going to the bank to cover off the mortgage; it often works out to be less costly; there is no need to change anything should you decide to refinance with a different institution; and there is flexibility should your insurance needs change (i.e. estate planning).

There are many different options available including term-10, term-20, or permanent. Chances are, with the help of an insurance advisor, you will be able to find something that is suitable for you.

When you combine the potential savings with the advantages of other debt reduction strategies, you might be surprised at how much sooner you can get out of debt.

If this topic is of interest, please call or email to pre-register for our upcoming presentation entitled “Peace of Mind through Debt Reduction”. Date and location to be determined.

 

 

 

Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only.  Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund.  For more information feel free to call Jim at (250) 594-1100, or email at  jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.

 

 

Just Posted

The Parksville Civic and Technology Centre at 100 Jensen Ave. (PQB News file photo)
Parksville 2020 annual report now ready for public feedback

Documents can be viewed online; comments or questions to be submitted before noon on July 5, 2021

FILE – Perry Bellegarde, National Chief of the Assembly of First Nations, takes part in an event on Parliament Hill in Ottawa on Tuesday, July 7, 2020. THE CANADIAN PRESS/Sean Kilpatrick
Indigenous Peoples Day must be a ‘call to action’, says Assembly of First Nations chief

Discovery of children at Kamloops residential school site must lead to change, Perry Bellegarde says

A Lotto 6/49 ticket purchased in Parksville for the June 19, 2021 draw is a $3M winner. (Submitted photo)
Winning Lotto 6/49 ticket worth $3M purchased in Parksville

Lottery prize winners have 52 weeks to claim jackpot

The border crossing into the United States is seen during the COVID-19 pandemic in Lacolle, Que. on February 12, 2021. THE CANADIAN PRESS/Paul Chiasson
VIDEO: Border quarantine to soon lift for fully vaccinated Canadians

Eligible travellers must still take multiple COVID-19 tests

Chilliwack secondary school’s principal is apologizing after a quote equating graduation with the end of slavery in the U.S. was included in the 2020-2021 yearbook. (Screenshot from submitted SnapChat)
B.C. student’s yearbook quote equates grad to end of slavery; principal cites editing error

Black former student ‘disgusted’ as CSS principal apologizes for what is called an editing error

Skeena MLA Ellis Ross. (Photo by Peter Versteege)
BC Liberal leadership candidate condemns ‘senseless violence’ of Okanagan church fires

Skeena MLA Ellis Ross says reconciliation isn’t about revenge for past tragedies

A coroner’s inquest will be taking place at the Capitol Theatre in Port Alberni for the next week. (ELENA RARDON / ALBERNI VALLEY NEWS)
Teen B.C. mom who died following police custody recalled as ‘friend to many’

Police sent Jocelyn George to hospital after intoxication had gone ‘beyond the realm’ of normal detox

FILE - In this Nov. 29, 2020, file photo, Las Vegas Raiders defensive end Carl Nassib leaves the field after an NFL football game against the Atlanta Falcons in Atlanta. Nassib on Monday, June 21, 2021, became the first active NFL player to come out as gay. Nassib announced the news on Instagram, saying he was not doing it for the attention but because “I just think that representation and visibility are so important.” (AP Photo/John Bazemore, File)
Nassib becomes first active NFL player to come out as gay

More than a dozen NFL players have come out as gay after their careers were over

Penticton Indian Band Chief Greg Gabriel speaks to the Sacred Hearts Catholic Church burning down early Monday morning, June 21, 2021. (Monique Tamminga Western News)
Penticton band chief condemns suspicious burning of 2 Catholic churches

Both Catholic church fires are deemed suspicious, says RCMP

COVID-19 daily cases reported to B.C. public health, seven-day moving average to June 17, 2021. (B.C. Centre for Disease Control)
B.C.’s COVID-19 infections drop to 90 on Sunday, 45 Monday

Pandemic spread dwindles as 77% of adults receive vaccine

Emergency vehicles are parked outside of the Wintergreen Apartments on Fourth Avenue. (SUSAN QUINN / Alberni Valley News)
Port Alberni RCMP investigate stabbing on Fourth Avenue

Two men were found with ‘significant’ injuries near Wintergreen Apartments

By protesting uninvited in First Nations’ territories, conservationists are acting in a neocolonial or paternalistic manner, says Huu-ay-aht Chief Robert Dennis. Photo by Heather Thomson
A closer look: do Vancouver Island First Nations support the war in the woods?

First Nations/environmentalist old growth alliance uneasy, if it exists at all

Most Read