7 Reasons You Shouldn’t Be Caught Dead With the Bank’s Mortgage Life Insurance


You just bought a house and the bank approved your mortgage. Now the bank tries to sell you their mortgage life insurance. You’re excited about your new home and you want to protect your family in case something should happen to you, so you buy the insurance thinking you got a good deal. Not necessarily. Bank mortgage insurance, more commonly referred to as creditor insurance, is loaded with fine print that homeowners never read, but if they did and compared it to other insurance plans, they’ll find out there’s a huge difference and they’ve wasted a lot of their hard-earned money. Most people are simply too busy to review their coverage and they’ve probably never read what they purchased. After reviewing and researching the bank’s creditor insurance contract, here are the top seven reasons you should avoid the bank’s creditor insurance product.

Reason # 1-Your insurance decreases every year but your cost remains the same.The amount of insurance protection available through a mortgage lender is limited to the outstanding mortgage balance. Your insurance protection decreases with each mortgage payment made, but your cost will remain the same.

Reason # 2-The bank is the beneficiary of your policy, not your loved ones. In other words you can’t choose your own beneficiary for the insurance proceeds. Because the bank is lending you the money for your home, they automatically become the beneficiary of all proceeds under a creditor insurance group contract. Unlike personally owned term insurance, your family cannot use the insurance proceeds upon death to cover needs other than the mortgage.

Reason # 3-Your insurance rates are not fully guaranteed in the contract. Your bank can change your rates at any time. With creditor insurance your premiums are paid on a group basis which means your rates can be increased at any time if the experience of that group becomes unfavourable. Simply put, if the bank isn’t making enough money on the product they will increase your rates.

Reason #4-Non-smokers pay smoker rates. Most mortgage insurance available through the bank only considers your age to determine your cost of insurance. There is no preferred pricing for better health risks. If you are in good health and don’t smoke, be prepared to pay the same insurance rates as someone with poor health and who smokes.

Reason #5-If you switch banks for a better rate, you loose your insurance policy. Mortgage insurance contracts do not allow portability, which means you can’t take the insurance policy with you if you change mortgage lenders. You will need to re-apply and qualify for new coverage with the cost based on your new age. Not only will you be paying more for your insurance coverage because of your increased age, but if your health has changed you might not even qualify for the coverage you and your family needs, leaving your loved ones in a vulnerable position. All that insurance money you paid the bank is gone forever with no return.

Reason #6-Poor advice-most bank employees are not licenced insurance advisors. Most if not all service representatives with the banks are not licenced insurance advisors, and therefore cannot offer expert advice regarding your family’s insurance needs.

Reason # 7-Your bank can cancel your insurance policy at any time! That’s right. Most if not all creditor insurance is a one-way contract. Since the bank owns and holds the contract with the insurance company, they control every aspect of the plan. If at any time and for any reason the bank decides to remove this product from the shelf, then they have every right to do so. Your insurance protection is gone and the money you spent is lost and can never be recovered. Of course the representative at the bank can tell you that they don’t think this would ever happen. But the contracts I have read are quite clear that this option is available to the bank and there’s nothing you can do about it.

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