Life Insurance or Bank (Creditor) Insurance for my mortgage?

The challenge

An executive at an engineering firm met with me to review his insurance plans to see if there were any gaps in his insurance needs.

Upon review, he had maxed out his available life insurance and long-term disability coverage through his work plan. There was a still a shortfall in his life insurance because his family would only receive a death benefit of 2 times his salary from his work when he dies; this is not enough for his family since he has young children, a mortgage and his wife would need the income support to help raise the kids, pay for the mortgage and put his kids through post secondary; So 2 years of salary payout out would not be enough to cover these important future family expenses.

The solution

As a financial planner, I want to help maximize what a client gets back for every dollar they put away, so I encourage my clients to first maximize their work benefits (life and disability insurance plans) because the employer helps cover the premium, giving clients a base level of protection for a very affordable price. Let’s maximize the insurance you have available at the lowest possible price!

In situations like this, where there is still a shortfall after maximizing the available life insurance through work, the common misconception for people is to go to their mortgage provider (often their bank) and ask for insurance for their mortgage.  

Upon reviewing the client mortgage insurance plan, I was able to help him replace it with a personal life insurance plan at a better price.

The result

Not only did the client save money, but now he has life insurance plan attached to his life, not to his mortgage. Why is this better for him?

1. He has an affordable premium that won’t increase in price during the term of his life insurance; mortgage insurance on the other hand increases in price during the term.
2. His life insurance benefit remains fixed, it does not decrease over the term unlike his mortgage insurance because the mortgage insurance coverage decreases as he pays off the mortgage. If he died near the end of his mortgage being paid off, he would have paid all that premium and have almost no pay out to support the family, whereas the life insurance plan would still pay out the full original insurance amount! That’s a significant difference in what his family would receive.

3. He has a guarantee from a life insurance company that they will insurance him, no matter his future health or occupation changes.

It’s great to save more money and have a better payout but most importantly you want to make sure that no matter what happens to you in the future, that you can qualify to be insured so your family can be protected. 

When you get a personal life insurance plan, these plans give you the option during their term to renew the policy or convert it into a permanent plan at your original health rates, no matter your health or occupation changes.

For this engineer client, he now gets a personal life insurance plan issued at his healthy rates, so if during his term he got diagnosed with a serious health condition and needed to update his insurance into a long term plan, we can do that for him and approve him for his original health rates! 

 Better value, better price, and better adaptability to your changing life.

*The above-scenario is for illustrative purposes only, and is not investment advice.