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When you’re getting a mortgage through your bank, you can buy their creditor insurance, which covers the insured balance owing on your mortgage should the unthinkable happen. The idea behind creditor insurance is good – if a homeowner becomes seriously ill or dies, the insured mortgage balance is paid off. This can provide great financial relief when it is needed the most. But is this the right coverage for you? An individual life insurance policy secured through a licensed Insurance Advisor is often a better solution to insure your mortgage. Want to know why? Read on!
1. Paying the bank, instead of your family
Creditor insurance is tied to your mortgage, but an individual life insurance policy is tied to YOU. That changes everything.
Creditor insurance pays the mortgage holder (usually the bank) what’s left on your insured mortgage. By contrast, an Individual Life Insurance Policy pays your beneficiaries the full value of your policy, regardless of what’s left owing on your mortgage. This means that your outstanding mortgage balance will be paid off, and quite often there will be funds left over for your loved ones to use as they please!
2. Decreasing value and uncertain premiums
Because creditor insurance is tied to your mortgage, the policy pays out the insured balance owing, which sounds good, but the amount the policy pays gets lower as time goes by and you pay your mortgage down. And even though the payout value goes down over time, the premiums you pay stay the same.
Also, any time you make a change to your mortgage (for example, you re-finance), your premiums will change based on the new amount of your mortgage and your current age. Any changes in your health when modifying your mortgage could impact your premiums and/or ability to be insured.
An individual Life insurance policy, on the other hand, pays the full value of the policy for the term you have bought, with consistent premiums that will NEVER change. So, as you pay down your mortgage, you increase the cash benefit amount you leave to your loved ones. And any changes to the structure of your mortgage such as a re-finance won’t impact the value of your policy either.
3. You get what you pay for
With Creditor Insurance, you may find out when you file a claim that you aren’t eligible for coverage, because creditor insurance policies are often underwritten at claim time. So you can’t know when you sign on, whether you are truly eligible for the coverage. With an individual Life Insurance policy, the assessment is done up front. So, as long as the policy conditions are met you can reasonably expect it to be paid out. This is something you’d rather know now than finding out when it’s too late.
4. Customize your coverage based on your unique needs
With an individual life insurance policy, you can add other options to your policy, like a critical illness rider that covers over 25 critical conditions vs. the few options that may be available with creditor insurance from your bank.
5. Get personal advice for your life
A real benefit of choosing an individual life insurance policy is that you work with a licensed insurance professional, who makes sure you have the right coverage suited to your distinct needs. They will provide you with customized options and expert consultation to do what’s best for you.