Buying a home is one of the biggest financial commitments people make during their lifetime. This is especially true these days, with real estate prices being so high compared to our parent’s generation.
Protecting your financial investment in a new home is very important. What would happen if you (as the mortgage holder) were to pass away due to an accident or a fatal disease? Will your home be fully paid off, leaving your spouse and/or children with an inheritance?
When purchasing a home mortgage protection is a must. Oftentimes the bank suggests purchasing their own bank mortgage insurance, and many people go along with this form of mortgage protection without being made aware that there is a much better alternative: term life insurance.
Term life can be used for the exact same purpose as bank mortgage protection, whereby it protects your financial investment in case of sudden, tragic loss.
The following compares term life insurance to bank mortgage insurance:
- With a term life plan, you own the policy, and not the bank.
- Death benefits (the amount of money paid out by the carrier in case of death) remain level with a term life policy and do not change. However, bank mortgage insurance only covers the outstanding mortgage amount, which means the death benefit steadily decreases over time.
- You control the beneficiaries with a term life plan, unlike the bank’s insurance whereby the bank is the sole beneficiary. With a term life plan, the beneficiaries can then decide to pay off all, some, or even none of the outstanding mortgage. (There are situations when it makes better financial sense to use the benefits in some other manner. For example, if the mortgage is a very low-interest rate, and there is another financial debt that needs to be dealt with such as high-interest credit card debt, high-interest student loans, etc.).
- Unlike bank mortgage insurance, many term life insurance plans can be converted to a whole life policy upon the expiration of the term. Whole life (as well as universal life) is used for wealth management and estate planning purposes, with the added bonus of building up a cash value. NOTE: this is why permanent life is more expensive than term life.
- If you decide to move and sell your house then the bank’s mortgage insurance terminates. However, with term life, you keep the policy as long as the premiums are paid up.
- For most bank mortgage plans the premiums are taxable (provincial sales tax). However, term life premiums are not taxed.
In conclusion, everyone that buys a home should take a long, hard look at using a term life insurance plan to protect their financial investment. Term life is currently very cheap and offers many advantages compared to bank mortgage insurance.
For a toll-free consultation with a Canadian licensed insurance broker please call Baker & Baker Benefits at 1-866-369-4474.
Alternatively, you can visit our website www.bakerandbakerbenefits.com
