Health Insurance in Canada is becoming a broader term each day. In Canada, Mortgage Insurance has been typically Life Insurance. In the U.K., Critical Illness Insurance is being tagged as Mortgage Insurance (because Critical Illness is outselling most forms of health insurance in the U.K.). Canada is also using Critical Illness Insurance as part of the Family of Mortgage Insurance.
SOUND COMPLICATED?
It's not as bad as it sounds. Just don't let yourself be misled by a generic name like Mortgage Insurance. It sounds like it says it all, until you see what you're actually paying for. And seeing that is vital: it may make the difference between keeping your house or letting the bank auction it off for you.
Insurance means protection, Mortgage Insurance therefore means mortgage protection. But protection against what - and for whom? In fact, the Mortgage Insurane you pay for, really protects the Bank, ensuring that they (not you) will get their money and they (not you) will keep your home.
Some of the more common reasons for losing a house are death, disability & expense of long term health care. The bank or Trust Company arranges for a group rate from an insurance company that names the bank (not you) as the owner and beneficiary of the policy. By protecting themselves, they feel secure in lending money to people (yourself, for instance) whom they otherwise would not give the time of day.
The rates are not guaranteed but expected to remain level while the amount of insurance decreases with the mortgage. Should you die, the bank would receive the insurance money and the mortgage would be paid. Should your surviving spouse or family have need of money, which is often the case, the best they could hope for from the bank would be the offer of another mortgage - based on their current financial status, which (because of your demise) would be minus one income. From start to finish, the bank controls the money, not you.
In fairness, if you have health problems or are a smoker, the bank rates may seem more attractive. Also, it is wise to take the bank's offer before you seek alternatives lest, while you are shopping around, disaster befalls you. You can always replace the bank coverage should you find out you are eligible for a more suitable alternative.
THE ALTERNATIVE'S
There are a variety of guaranteed, non cancelable, private insurance plans where you are the owner of the contract and your family is the beneficiary. In this case, you choose the type* and amount of insurance coverage you want, as well as the manner in which the cost is calculated.
For example:
If you choose the cost and coverage to remain the same, you pay more.
If you choose increasing cost with coverage ending at age 70 you pay less.
Most of the cheaper increasing cost plans allow you to convert (before age 60) to a more expensive level cost plan without a medical.
Instead of the bank's generic group rates, the Insurance Company is prepared to offer you a rate based on your personal and family health background. As long as you are healthy, you can always shop around. If your health takes a turn for the worse, you had better be content with what you have.
All of this involves disclosing more information about your health than you might feel comfortable with, but it will be time well spent, a decision you will never regret. If nothing else, it will greatly increase your awareness of your strengths and vulnerabilities, giving you the invaluable knowledge you will need in time of crisis.
This information was requested by your agent, Duncan Fremlin. Over the past 20 years I have known Duncan to be a responsible and empathetic person. He is very aware of the barrage of decisions you must make in the purchase of a home and does not want you to compromise the importance of protecting it by missing out on the last detail.
I hope this will be of some help.
*
CMHC insurance insures the bank from you defaulting. You must pay for it if your down payment is less than 25%. It protects them not you!
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Types of insurance available to prevent you losing your home include, Life Insurance, Disability Insurance, Critical Illness Insurance.
