Should I get mortgage insurance through the bank?

This is a question that I am asked often. Mortgage insurance through the bank is often activated, sometimes unknowingly, or without much thought or understanding, when signing the many pages of mortgage paperwork. This is because the default at most banks when obtaining a mortgage is that you automatically sign up for the insurance. Typically, the only way to not have this insurance put into place when signing the mortgage paperwork is to tick the boxes to actively decline the insurance. If someone isn’t paying attention to the details, they would start being charged a monthly premium for this insurance.

Is this a bad thing? Doesn’t it protect me?

Whether it is a bad thing or not depends on many factors. Does it protect you? Maybe. The answer to this is very unclear.

Years ago, I received a phone call from somebody who was frantically trying to obtain some insurance for herself. This woman had owned a home for many years and had been paying into mortgage insurance from the time she bought the home. She was very excited to have just purchased another property as a rental property.

Unfortunately, between the time of the first property purchase and the second property purchase, her health had changed, and she had been diagnosed with MS, and had been living with it, thankfully without too many complications, for a couple of years. A short while after the mortgage was put into place, the bank called her and let her know that they were declining her mortgage insurance on the new property due to her health and that they had also cancelled the mortgage insurance on her existing property. Now she had no insurance whatsoever to cover either mortgage. She was extremely upset and surprised by the call from her bank. Unfortunately, because of her health, she was now also likely unable to get any new individual insurance.

Mortgage insurance has a lot of pitfalls. If you are healthy enough to be able to secure individual insurance instead, it is highly recommended for many reasons:

Broader Coverage: Individual insurance covers more than just your mortgage. It offers protection with a payout that is more flexible as it can be used for a variety of expenses, including your mortgage, or other financial needs. You have the control and choice of how the payout is used, instead of simply having your mortgage paid off, which benefits the lender the most. The benefit amount does not decrease as you pay down your mortgage.

Underwritten at Time of Application: With individual insurance, the underwriting is completed when you apply, meaning the insurance company assesses your entire situation, including your health situation in advance. Once you are given the offer to secure the insurance contract, you know exactly what coverage you’ll have and can rest assured that you won’t face issues when making a claim later, even if your health changes later on.

Portability and Flexibility: Individual insurance isn’t tied to your mortgage lender, which means you can keep your policy even if you switch lenders.

Control: Once you have the insurance policy in place, you have full control over the contract. The insurance company cannot cancel or rescind the coverage on you, even if your health changes. You have the flexibility to decrease the coverage or cancel it whenever you want to. Your premiums are usually set in advance and any future premium increases are spelled out directly in the contract so that you will have no surprises.

Business Owners

The most overlooked area of financial planning for business owners and incorporated professionals is the lack of integration between corporate and personal assets. When the majority of your assets are in your corporation you need very specific, specialized and personalized financial advice.

Learn More