Blog by DOINA BIOLAN B.Comm

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Bank Life Insurance vs.personal Life Insurance

DO YOU KNOW THE DIFFERENCES BETWEEN BANK LIFE INSURANCE AND PERSONAL INSURANCE ?

Your lending institution/bank offers mortgage insurance at the time you get your mortgage approval .

But why settle for an insurance product that does just one thing?

When it comes to protecting your family, there is another option to consider .

Here are the differences, you decide which insurance gives you more for the money :

BANK LIFE INSURANCE:

-          You do NOT own your policy, your lender does. Like with any other contract, would’t you like to have control of your Life insurance contract provisions?

-          You cannot choose or alter the amount of coverage . Banks usually offer a policy equal with your mortgage amount only.

-          Your coverage is a DECREASING coverage . Basically, you are paying the same amount of money as long as the policy is in force, but your coverage amount is decreasing as you are paying down the mortgage. How is that fair?

-          Your coverage CANNOT BE CONVERTED TO PERMANENT protection. That means that your coverage expires once your house is paid in full. But what happens if you decide to buy a rental property? You are older now, maybe your health is not the best either, applying for a new life insurance policy will not only be more expensive, but you may not even get approved anymore!

-          Usually , if you change your lender, refinance or renegotiate your mortgage, you cannot transfer your policy . You may have to renegotiate your insurance, that may come with some challenges ( again, age, health etc).

-          You are NOT the beneficiary of your policy, your BANK IS. Wouldn’t you like to choose your own beneficiary?

-          You CANNOT use the proceeds of the mortgage to cover needs other than the mortgage.

-          MOST IMPORTANT ! you do not have to go through underwriting at the time of approval, as the Life insurance company does NOT check your medical history at the time of approval. However , they DO IT AT THE TIME OF DEATH. That opens the door to lots of unpaid claims, due to non-disclosure , forgotten or wrongfully answered questions by the applicant. That does not have to be intentional either, but how can you prove that AFTER DEATH ?

 

PERSONAL LIFE INSURANCE

-          You are the OWNER OF YOUR POLICY . That means that you can choose your policy provisions such as : coverage amount, type of coverage, convertability options, length of policy, how many insureds should the policy cover, who are your beneficiaries etc.

-          Your COVERAGE NEVER DECREASES, unless you choose such provision. It does not matter if your mortgage balance is not less than at time of approval, the coverage stays the same amount as initially approved .

-          You CAN EXCHANGE TO POLICY with a different term , without medicals ( conditions apply), can convert into a permanent policy at anytime , without medicals, can change your smoking status later( become a non-smoker, which will reduce your premiums drastically),can add your kids to the policy, can choose to have riders such as Accidental Death or Critical Illness attached to your policy. Also, should you move, refinance, change your lender , buy another property , sell the house and not buy another one, paid the mortgage in full , your policy DOES NOT EXPIRE .

-          You CAN CHOOSE YOUR OWN BENEFICIARIES: your spouse, kids, your favorite charity, even a beneficiary that lives outside Canada.

-          Your beneficiaries can use the proceeds for ANYTHING THEY NEED/WISH, not necessarily to pay the mortgage. They may decide to use a portion of it towards paying the mortgage and the rest to invest it for retirement, for example.

-          MOST IMPORTANT! The life insurance company does the UNDERWRITING UPFRONT ! They check your health BEFORE APPROVAL, which is very important! Even if you forget about a pending test or a health issue you had in the past , their underwriting department will do their due diligence in finding all the details before issuing the policy. You want the policy to pay, don’t you?!

TIP!!!

THE EARLIER YOU GET A LIFE INSURANCE POLICY IN PLACE, THE CHEAPER IT IS . You do NOT have to wait until you buy a property. Be proactive and lock in a good price while you are young and healthy .

To get more clarification of the above, please do not hesitate to call me or email me at doina@azurefinancialsolutions.com .