Bank Offered Insurance Is A Bad Deal

It is possible that bank offered, creditor life insurance is not the worst deal you can ever make, but it should be in the conversation.

Ellen Roseman’s recent column in the Toronto Star is revealing.  Bank’s mortgage life insurance has flaws

I talked to Ellen a few times many years ago.  She is nice woman.  The headline on her article is just her being nice.  The article should have been entitled, “Bank’s Mortgage Life Insurance Has Deal Breaker Flaws.  Pay Attention!”

Here are the obvious flaws:

  1. You do not know if you are covered because neither the bank nor their insurer does underwriting or other verification until they have a claim.  (Like the story in her column.)  Who knows what they will decide then?  Whose interests will be taken most seriously?
  2. Bank record-keeping and paperwork are notoriously shabby on the insurance issue.  They may not have processed the paperwork even though you see a debit each month for the premium.  There are cases like that.  What happens when the insurer says, “We don’t know you.”
  3. The coverage is group insurance.  The insurer can cancel anytime and the bank is under no obligation to replace your coverage.
  4. The rates are whatever the insurer decides they want.
  5. The resulting premiums can be as much as double what they would be if you arranged your own insurance.  (Read that again – bank insurance costs much more)
  6. Your personal policy will have guaranteed future rates, non-cancellable coverage, and underwriting at the front of the deal.  You know what you have.
  7. Last, and this one is important for people like the Massa family in Ellen’s column, banks can only cover healthy people.   Standard issue or decline is the rule, (assuming that they actually pay attention to what you tell them.)  If you are not in standard health, you can still get coverage with an individual insurance policy.  Real insurers have flexible pricing that reflects your condition.

Insurance that may not be there when you need it is incredibly dangerous for important issues like paying off the mortgage on the family home.  The bank offered coverage has other very negative contractual characteristics, plus its price is substantially more.  Altogether this form of life insurance is a non-starter for anyone with reasonable financial awareness.

Control your own insurance.  It might not matter, but if it ever does, it will matter a lot.

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Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: don@moneyfyi.com

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