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Bo Kauffmann: Mortgage insurance or life insurance. What’s the difference Let’s find out right now
Bo Kauffmann: Today we’re going to talk about is the difference between mortgage insurance and life insurance. This has nothing to do with the property itself. Property insurance or CMHC, Canada mortgage and housing. If you’re buying a house and putting less than 20% down, you need to get CMHC. That’s not what we’re talking about. What we’re talking about today is a a bank offered product called mortgage insurance. And how does it compare to a personal or a life insurance That’s sad. Let’s discuss. All right, so I’m here with Thomas Johnson, a financial adviser for cascade financial, and we’ve got to discuss the differences between mortgage insurance and what I call life insurance. He calls it personal insurance. So, uh, here we go. Thomas, welcome. Thank you. Go. Okay, so why don’t you tell us a little bit about what a mortgage insurance.
Thomas Johnson: Yes. Mortgage insurance who really is a, at its core, it’s always a life insurance policy. And then there’s usually one extra insurance type that you can add onto it, uh, that either disability insurance, critical illness or loss of employment. Uh, it’s a kind of thing that comes standard when you go into a bank or when you get with a mortgage broker, it’s a requirement. It’s something we have to offer to you as part of the, uh, the lending deal, just because the federal government realizes the importance of having mortgages insured against death, disability, or illness. So that’s what mortgage insurance is in a nutshell.
Bo Kauffmann: Okay. So they have to offer it, but the consumer, the homeowner does not have to buy it
Thomas Johnson: No, it is 100% elective. And that’s a common misconception. A lot of people think they have to take the insurance to get the, uh, get the mortgage, but it is 100% elective and you still have to apply and qualify.
Bo Kauffmann: Okay. So what are some of the advantages of using
Thomas Johnson: mortgage insurance Really, there’s only two that I can think of. Uh, the first being is that it’s simple and easy to apply for it because you’re already at a desk, you are already there with your mortgage broker or your banker. The papers are right in front of you and it doesn’t require a separate meeting. And somebody like me, uh, so that makes it easy. And then also it’s easier to apply for it. And I asked her so that, uh, just because the only ask a handful of questions, you might face three, four, or five questions. Basically. Are you a smoker Yes or no And Are you suffering any serious health problems Yes or no And if the answer no to the second one, then you get a policy in your hands. Uh, but the asterisk we’ll talk about in a little bit, it doesn’t necessarily mean that you are going to be covered.
Bo Kauffmann: Right. And actually we’ll get right into that right now because that’s one of the drawbacks for mortgage insurance as I understand it.
Thomas Johnson: Absolutely. There’s a, there’s a number of drawbacks. The, the biggest one in the big killer for me is really that you are often not insured, are guaranteed to be insured, um, simply because the underwriter doesn’t look at it until the time of claim. So the point in time when you were diagnosed with cancer, the point in time when you hurting, unable to work, uh, the point in time where you’re passed away, he’s no longer defend yourself. That’s the point in time. Somebody actually looks at your case and decides whether or not you would be covered. So in a nightmare scenario, you’ve got a widow or widower, um, who now has to go battling insurance company over a claim payout for, uh, for the mortgage insurance, uh, after their spouse is long gone. Um, because it’s now being reviewed at that point in time.
Bo Kauffmann: Okay. So just to be clear, cause this, this really blows my mind sometimes. I’ve heard this before. I actually had a friend who went through this is uh, his mother had mortgage insurance, she was a widow. She passed away and my friends family ended up fighting the bank to get the payout. So just because you’ve due to fully paid into it for years doesn’t mean you’re going to get the payout when you expect them.
Thomas Johnson: Correct. It is not guaranteed. You are paying the premiums. And the only point in time when you find out whether or not you’re actually covered is the time when you need it the most.
Bo Kauffmann: Okay So let’s assume that you know, they, for whatever reason, they deny your claim. Do you get all your benefits Do you get all your payments back
Thomas Johnson: Uh, they’re usually obligated to pay back what premiums you paid into it. So that’s the minimum amount that you’ll get back. Um, for the life insurance side of things. If it’s a disability claim and you’re denied, uh, it doesn’t mean you get your money back.
Bo Kauffmann: Okay So when you’re at your worst, when your spouse has passed away, that’s when you got to try and figure out whether or not you’re going to get the money or not. Exactly. Okay. So let’s talk then a little bit about the alternative. What other options are there for
Thomas Johnson: Basically, personal insurance is the alternative. You come and you see somebody who’s a licensed insurance advisor like myself, um, they walk you through all the options available in the market and you get to pick and choose to take a plan that works best for you. So if you want life insurance, you take life insurance. If you don’t get them, if you want disability, you can take it. If you want critical, then, unless you can take it totally up to you and how you customize it, it can be built around your overall financial plan. So if you want more than just enough insurance to pay off your mortgage, if you want enough to cover off your car loan, if you want to pay for your kid’s school, if you want to provide for your spouse so they have time to grieve. If he might have state taxes, you can build a policy or policies that fit that entire goal instead of just being pigeonholed into the mortgage. Windmill.
Bo Kauffmann: And actually I just remembered something else too with mortgage insurance. The first kind, if you pass away and if they do pay out, who gets that money
Thomas Johnson: The bank gets the money, the payout is always described as the exact amount to pay off the bank. The money goes straight to the bank and the mortgage is now free and clear when it’s a personal insurance policy. On the other hand, the money goes to your beneficiary. They can choose to pay off the mortgage or not and they always get the exact face amount on the policy. So if you’ve paid off $100,000 on your mortgage balance, you’ve now created $100,000 more for your state. Whereas if you’ve paid off $100,000 and you’ve got the mortgage insurance, that just means the insurance company’s on the hook for less money to the bank.
Bo Kauffmann: Right. Okay. And with personal insurance, as you said, you get the money, you decide what to do with it. So if you have no mortgage or if you have a low mortgage, you may decide to keep that and use that money to pay off other higher debts are high or low.
Thomas Johnson: Exactly. You can invest it, you can pay off loans. It’s the beneficiary’s money to do what they want. With
Bo Kauffmann: now having said all that, it, it, it sounds like, and you know, I’ve done enough research on it to know that I believe that personal insurance or life insurance is a better vehicle. It’s got to be more expensive. But in the mortgage insurance on that,
Thomas Johnson: that is the weird thing about it is personal insurance is one of those rare, rare things where the better product is actually the cheaper product. Um, case in point, I’ve got a couple I’m working with right now. We, uh, he had mortgage insurance to cover just under $400,000 of a mortgage. Uh, it was costing them $70 a month just for him. I got them both $500,000 of mortgage on both him and her for the exact same $70 a month. It’s a longer term. It’s a level payout. It’s not decreasing and it’s underwritten up front. So there’s no contestability over whether or not somebody who’s passed away and there’s going to be a paled. Um, it is set in stone
Bo Kauffmann: so they’re both covered for roughly the same price as one of them under mortgage insurance with higher coverage amount with higher coverage a month. Okay. All right. So from what I see, the biggest disadvantages that people uh, to get personal insurance, it’s an extra step for somebody to go through.
Thomas Johnson: Exactly. They basically, if they come to my office, we have a meeting, it’s usually somewhere between half an hour to an hour. Uh, we put in an application to go through a questionnaire, a it because it is personal insurance in the event that they are applying for a certain dollar amount or if they have a riskier health history, they may be required to see a nurse, that nurse will take blood and make them peanut cup, blood pressure, that sort of thing. And uh, those results get sent off to an underwriter and I can take a couple of weeks to get a decision back.
Bo Kauffmann: I was far as mortgage insurance that comes from the bank. If people able to cancel that after a year,
Thomas Johnson: they can cancel it at any point in time. There’s no requirement that you hold onto it for a certain period of time. There’s no fee for canceling. Basically if you cancel within the first three months, the person who sold it to you gets charged money for you’re cancelling early, but there’s no fee to you as the uh, as a consumer.
Bo Kauffmann: Okay. And if you get personal insurance, if you want to increase it or decrease it at some point down the road,
Thomas Johnson: you can always decrease it, no questions asked. However, if you do want to increase it and get more coverage down the road, you either need to buy a rider up front that allows you to do so, or you have to come back and apply for new insurance.
Bo Kauffmann: Okay. And where do people get ahold of you if they want to
Thomas Johnson: Uh, you can find me online at www.cascadefinancialgroup.com. You can call me at (204) 837-1960 or you can stop by my office and say hi at 1730 corydon avenue.
Bo Kauffmann: Well, thank you very much. It’s been a very enlightening session
Thomas Johnson: Thanks for having me.
Bo Kauffmann: This has been Bo Kauffmann of remax performance realty. I do hope you’ve enjoyed this presentation. If you’re looking to buy or sell a house or a condo in Winnipeg, please give me a call anytime. I’m here to help. My direct cell is (204) 333-2202 or my email is Boknowshomes @gmail.com until next time, bye bye.