Mortgage insurances (also called life and/or disability insurance) can cover the totality of your mortgage and/or the monthly payments (including taxes) for the entire duration of the loan (usually 25 years). The capital is paid in the event of a premature or unforeseen death, total disability or a dreaded critical illness of one or both of the co-owners of the debt (depending on the type of contract you own). This is a very important insurance and it’s totally different when compared to home insurance that protects your house in case of fire and water damage.
Although home insurance is a legal requirement when you buy a home, according to the statistics, you only have one chance in a thousand two hundred (1/1200) to need it in case of fire before age reaching age 65. On the other hand, before reaching 65 years, the likelihood of needing a:
Life Insurance is one in thirty (1/30)
Disability Insurance, is one in three (1/3) *
Critical Illness Insurance, is one in two (1/2)**
*Statistics Canada, Canadian Disability Survey, 2012.
** Publication Canadian Cancer Statistics, 2017.
There are several types
The capital of the cover is paid in case of premature death, which affects one in fourteen (1/14) for different reasons before the age of 65. Here are the features you need to understand to make an informed choice:
MORTGAGE INSURANCE (OFFERED BY BANKS)
1. The insurance capital declines over time alongside of your mortgage
2. The contract is generally expensive compared to the protective capital;
3. The contract is considered as low-end;
4. The premium changes over time;
5. You do not choose who will be the beneficiary of the protective capital ($), if you die, you only keep the house and you are freed from the mortgage debt;
6. The lending institution owns your insurance contract, so you lose it if you change the lender to get a better rate;
7. When a claim for the insurance money is requested, your health condition will need to qualify you for the insurance at that specific time, even after paying the contract for years you risk a denial;
8. The contract covers only the remaining mortgage of the house;
9. You are not protected by the professional insurance of an agent authorized to practice his profession and recognized by the AMF (Autorité des Marchés Financiers);
10. Mortgage insurance was created by lending institutions to protect themselves in case you could no longer pay because of a premature death or disability.
INDIVIDUAL INSURANCE WITH ONLINE INSURANCE
1. The insurance capital will not change until the end of the contract;
2. The contract is generally inexpensive in relation to the protective capital;
3. The contract is considered high-end;
4. The premium will not change;
5. You choose who will be the beneficiary of the protection capital ($), so the money stays in the family instead of going to the lending institution and the house also stays in the family, even if a part of the debt remains, you could continue the payments with the interests generated by the amount you received without losing anything;
6. You are the owner of your contract, so no matter the lending institution, the contract will follow you;
7. When a claim for the insurance money is made, you will already be prequalified because your health was already known to your insurance company when it agreed to insure you;
8. The contract can cover your home and several other financial vulnerabilities, such as a student debt, a car loan, unpaid taxes, an amount for your spouse and children, etc.;
9. You are protected by the professional insurance of an agent authorized to practice his profession and recognized by the AMF (Autorité des Marchés Financiers);
10. Individual life insurance was created by insurance companies to protect you and your loved ones.
Beyond the age of 80, if you plan on having some unpaid debts, you could consider a Permanent Life Insurance to cover the remaining debts beyond that age (examples: mortgage loan, estate taxes and investments taxes).
MORTGAGE INSURANCE DISABILITY
We also recommend you to own some form of disability insurance to cover a generous part of your salary or your debts or both. According to statistics, you have about a one in three chance (1/3) to be disabled for more than 3 months before reaching the age of 65 years. Here are some descriptions to help you make the right choice:
Covers only the monthly payment of your mortgage in case of a disability. This protection ensures the bank that you will be able to afford your monthly payments.
The majority of households need money to buy food, pay the electrical bill, car payments, credit card loans, etc. so this protection is generally insufficient to cover all the budgetary expenses.
INCOME INSURANCE (SALARY)
Can cover everything that you would normally pay with your income, it is the most versatile protection and contrary to popular belief, it does not cost more than bank disability insurance or debt insurance.
LOAN INSURANCE (DEBTS)
Covers your mortgage payments as well as any other debts you have with one or more recognized financial institutions (like a car loan, line of credit, credit card debts and even a lease between you and your landlord) all in the same contract.
MORTGAGE INSURANCE IN CASE OF A CRITICAL ILLNESS
We also recommend critical illness insurance in case of a serious illness or a very hard blow to your health. This type of contract covers its owner from the financial impacts of several dreaded diseases and health problems like cancer, paralysis, a coma, heart failure, sclerosis, loss of eyesight, severe burns, etc.
The different types of disability insurance only apply when a doctor tells you that you are totally disabled, meaning it’s totally impossible to go back to work. If your health problem enables you to go back to work a few hours or days per week, it is possible that you will not get any disability insurance benefits. If the health problem is an illness covered by your critical illness insurance contract, you will receive a fixed amount that, generally speaking, is about as much as you earn during an entire year or two, regardless of your ability to work.
This kind of protection shouldn’t be overlooked, as statistics show that everyone has approximately a one in two chance (1/2) of you or a loved one will need it before the age of 65. Most of these contracts come with a refund option, at a higher premium, which reduces your risk of owning this insurance to almost zero.
This protection pays a lump sum that can cover your medical expenses, mortgage payments, medical care offered in the private sector, medical tourism fees, etc., so can focus on a full recovery.