Life insurance is a consumer product we buy and hope we never have to use. Home and vehicle insurance coverage is purchased on the same basis. We purchase insurance to cover a catastrophic loss to ourselves or our family.
Life insurance covers the loss of life. There are many types of life insurance, example term, whole life and universal life.
Mortgage insurance or creditor insurance is insurance to cover the financial debt for a mortgage, line of credit, or a consumer loan, example a vehicle loan at a car dealership.
Creditor insurance reviews your claim after death to determine if your death claim will be paid; this is called post-claim underwriting. After you die, they review your medical information to see if all your questions were answered correctly or if you have a health issue. With creditor insurance your claim can be denied after death.
Life insurance is underwritten at time of application. This process takes approx 4-6 weeks for the application to be processed. When approved your policy is issued and as long as you have been truthful in your answers, your life insurance policy is paid to your named beneficiary a few weeks after death.
Life insurance pays out the coverage amount you choose. With life insurance if you choose the coverage amount of example $400,000, this is the amount that will be paid out tax free to your named beneficiaries.
Creditor or mortgage insurance has a declining balance pay out. As you pay down your mortgage, the insured amount also declines.
Why would you pay the same monthly premium for a coverage amount that decreases each month? Can you imagine going to the grocery store and paying the same amount each month, but you are forced to take less groceries home each month?
Life insurance offers non smokers a substantial discount to non-smokers. With traditional mortgage insurance, there is no discount given to non smokers.
Mortgage insurance pays the balance of the mortgage debt to the lending institution upon death. Only the lending institution is listed to receive the proceeds.
A mortgage insurance agreement means you have qualified to pay premiums during your lifetime, but you are not guaranteed to be paid out after death.
Most banks, lending institutions and mortgage brokers sell mortgage insurance. First they finance your mortgage, and then they try to sell you mortgage insurance to cover your mortgage debt. These are both huge profit centres for the lending institutions.
You do not have to purchase mortgage insurance from your lending institution. If you have purchased it, you have the option to cancel it.
A personally owned term life insurance provides many benefits. You own your insurance; you choose the coverage amount, you choose the length of term, and you choose the beneficiary. The death benefit is paid tax free to your named beneficiary shortly after death. Personally owned term insurance protects your family.
The proceeds from your term life insurance can be used in any way your beneficiary decides, they may use the money to repay the mortgage; may choose to pay higher interest credit debt; or have funds quickly available for immediate living expenses or to pay for final funeral costs.
Doreen Smith is a Certified Financial Planner and Life Insurance Broker with Capri Wealth Management Inc. Doreen can be reached at 250-869-3825, [email protected] or for a quote: www.kelownalifeinsurancebroker.ca