It may not be at the top of your homebuyer list, but seriously, have you thought about mortgage creditor insurance?
When you worry about losing your job or being injured at work just when you plan to buy a family home, mortgage creditor insurance may be the solution. You can even add creditor insurance to your home equity line of credit (and credit cards).
It’s worth considering if…
When Mortgage Creditor Insurance is Worth the Cost
…you have a chronic health condition
…you’re the sole source of support for your household
…you have a long mortgage
…or you want the assurance your bills will be paid, no matter what.
Ratehub.ca reports a Canadian Association of Financial Institutions in Insurance (CAFII) poll discovered 94% of purchasers with successful claims were satisfied with their mortgage creditor insurance. Coverage can be less expensive for older applicants than 10- or 20-year term life insurance. It’s usually cheaper than individual disability or critical illness packages.
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What is Mortgage Creditor Insurance Anyway?
Mortgage lenders recommend mortgage creditor insurance when you sign a mortgage. Your policy is provided by a life insurance company or, for mortgage broker customers, the private Mortgage Protection Plan.
It can make the difference between tying up your estate in time consuming probate hearings, or automatically dissolving your mortgage debt when you die. More than that, mortgage creditor insurance gives you and your lender the assurance your payments will continue even when you can’t make them yourself.
Qualifying is simple:
- Your lender gives you a health questionnaire to complete.
- Provided your health is good, your chances of being approved are very high (84% according to CAFI).
- Your lender’s insurer may require a medical exam for chronic or serious health conditions.
- Once approved, the premiums are folded into your monthly mortgage payment.
- As long as the health information you provided was accurate, the insurer will pay off your mortgage if you die, and cover your mortgage payments while you are sick. (Some exclusions may apply. Talk to your lender or insurance provider for details.)
Why Buy Mortgage Creditor Insurance
Mortgage creditor insurance can protect you and your family from serious illness, job loss, sudden disability from a workplace accident or vehicle collision, or unexpected death. How much coverage you have depends on the policy you select.
Instead of struggling to financially support children, elderly, or disabled family members, or make mortgage payments on a reduced income, you and your family can rest easy the bills are covered by a mortgage creditor insurance policy. What to do if I default on a mortgage.
Mortgage life insurance writes off the mortgage in full if you or other property title holders die. It’s a small cost for major financial relief. Acceptance rates are high, and it may fill a gap other insurance policies won’t if you have a health condition or high risk work. Your foreclosure lawyer and how mortgage default works.
Is Mortgage Creditor Insurance Right for You?
That’s not to say mortgage creditor insurance is for everyone.
Premium rates are high, and your payments stay constant even as your outstanding mortgage balance (and coverage) decline. Smokers and non-smokers alike often pay the same premiums, regardless of their health risks.
Your lender reaps the benefits if you die. Unlike other life insurance policies, your beneficiaries won’t receive a cash payout, and your coverage may expire before your mortgage does. Most terminate around age 70.
Six months salary in the bank? You might think about declining, especially if you could withstand a sudden economic shock. You’ll be encouraged to return to work quickly (if you can), and if you do have to use your mortgage creditor insurance, your income may not be matched in full.
What you will receive is a maximum payment determined by your insurer. For more on credit insurance, read this.
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Buying land or property in Ontario? Axess Law’s licensed real estate lawyers review your agreement of purchase and sale to ensure it is valid and legally binding on the seller. We recommend clauses that can protect your financial interests, and review your offer’s terms and conditions with you to ensure you understand the legal obligations you are agreeing to.
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Your Axess Law real estate lawyer liaises with your realtor and bank, trust company, credit union, or private lender to finalize your real estate transaction. If the completion date changes or a professional home inspection raises red flags about a property you are buying, we negotiate amendments to agreement of purchase and sale contracts. What to know about the offer to purchase.
When you buy and sell a home at the same time, our experienced legal team receives your lender’s documents to discharge your old mortgage and make new financing arrangements. Discharging a mortgage in Ontario. We transfer title to the property and, at your request, can add family members to a title now or later.
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