Mortgage Insurance: All Insurance is not Created Equally

With mortgage insurance from banks, if you die suddenly, the banks can deny claims years later because of incorrect answers to health questions.

A recent article in the Toronto Star discussed the pitfalls of mortgage life insurance that is offered by banks when an individual is approved for a mortgage. Mortgage insurance is life insurance that pays off your mortgage on death of the insured. However, there have been instances when the banks have declined claims because of incorrectly completed mortgage insurance applications.

The key point in the article in the Toronto Star is that the mortgage life insurance offered by the banks is reviewed for acceptance or underwritten when a claim is made. On the contrary, life insurance offered by life insurance companies is reviewed for acceptance at the time the insurance application is completed. This is called the underwriting process. When an individual applies for life insurance with an insurance company through a life agent, he/she has to qualify medically for the coverage; there are a series of medical questions and other related questions that need to be answered. Blood and urine tests are quite common as part of the medical review process. When an individual applies for mortgage life insurance at the bank, they simply answer a few questions. Usually, no medical tests are completed to determine if the applicant is healthy. If he applicant unknowingly answers a question incorrectly, the bank could deny the claim and not pay the insurance coverage amount at the time of death. For example, in the article, the husband that died had ticked the box that stated that he did not have lung disease. However, when he died, the bank did not pay the claim because he had bronchitis; the bank stated that this was lung disease.

Mortgage insurance is deceptive because (1) The coverage declines with the mortgage balance but the premiums don’t decline (2) Banks don’t provide coverage when you sign the application; they only provide coverage if you pass a post-death medical exam (3) The other important point is that the bank is the beneficiary. If you purchase your own policy, you can designate who the beneficiary is. For example, your spouse could be the beneficiary instead of the bank. Clients will believe they are covered; however, they fail to understand that the coverage will only be effective if they pass the post mortem medical exam.

Few people will meet the post-death medical exam. The slightest illness can disqualify the applicant, even illnesses that have nothing to do with the cause of death.

In short, get your life insurance with an independent life insurance agent and not with the bank while you arrange your mortgage. GTA Wealth can arrange your mortgage at very competitive rates and provide you with life insurance for proper risk management. The tax accountants, mortgage brokers and financial advisors at GTA Wealth Management Inc. work in unison for your best interests. Protect yourself with GTA Wealth Management Inc, we provide financial services you can trust.

Contact or call GTA Wealth Management toll free 1 855 GTA WLTH (855 482 9584) to accelerate your ride to financial independence. A professional wealth management financial advisor is ready to serve your wealth management, tax return and planning needs. GTA Wealth Management Inc. has three convenient locations in Mississauga, Toronto and Markham to serve you.

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