Bank Offered Mortgage Life Insurance Is A Dumb Choice.

People used to trust banks because at one time they tried to act to help their customers. No one then thought they were putting their own interests behind those of the customers, but people didn’t think the bank would try to take advantage of them, either.

Maybe they did and we didn’t notice.

My experience was the banks charged reasonable prices for their services and while a bit ponderous sometimes, their product offerings, services, and methods made sense and were priced reasonably.

That day is in the rear view mirror.

Today is different

Today, banks try to make money on every single transaction they process. Add-ons to your mortgage are one such.

It will eventually harm them, but they seem not to care. Their in branch representatives have quotas to sell everything from mutual funds, to life insurance, to car insurance, to credit cards. Your interests are secondary.

Customer satisfaction and value is nearly not a consideration.

The message is plain. If you abuse your customers because you think they won’t find out, you are in trouble when they do. Given the ability to communicate today, everyone will find out eventually.

Case in point, mortgage insurance.

Bank offered mortgage insurance may look easy and convenient but it is far from it. When you compare it to individually owned life insurance policies you find one thing you like, it is convenient. There are several things you wouldn’t like if you knew the comparison.

With an individual policy you own it, you control it, the prices are guaranteed in the future, it’s portable, the amount remains the same, you decide the beneficiary of the money at death, the insurer cannot cancel it, there are no pre-existing conditions that allow the insurer to not pay, and the coverage could be converted to something else.

Let’s compare to bank offered coverages:

You own it – NO. The Bank does.

You control it – NO. Your control is limited to quitting.

Price is guaranteed in the future – NO. Rates can change

It’s portable – NO. If you change banks or even get a new mortgage, the coverage doesn’t move with the change.

Amount is level – NO. It shrinks as the mortgage does, even if you are in poor health.

You decide the beneficiary – NO. The insurance pays off the mortgage regardless of what is appropriate for the survivors.

The insurer cannot cancel your coverage – NO. They can and there is no guarantee you will get coverage under their new offering.

The insurer does its underwriting before issue – NO. They do it when there is a claim. If you had something wrong, even something you did not know about, they don’t have to pay.

The coverage is convertible to something that suits you better later in life – NO

That’s a lot of NO’s, but, of course, being such a weak contract, it must be greatly less expensive.

I should insert a laugh track here.

Bank offered life insurance costs immensely more than individual coverages.

Example. A 37 year-old single mother has a $130,000 mortgage with a major Canadian bank. She pays $26.00 per month for life insurance on that loan. By the time she is 41 it will cost $37.70 per month. But it’s convenient. Momentum is a powerful force.

She could, being a non-smoker and in good health, buy individual coverage for less. A little less, for a better contract. Another NO. It costs a lot less for a better contract.

Using 10-year Renewable Term, for the next 10 years she would pay $19.35 a month from a major carrier. Not so much less you say. Except the $19.35 buys $500,000 of coverage. For $33.30 she can get $1,000,000. For one cent more a month than she pays now, $26.01 she can get $672,000 of coverage and a better contract. $672,000. She gets more than five times the coverage for the same price.

If she pays annually instead of monthly, the $19.35 a month becomes $215 a year, saving $17.

How hard is this decision? The extra investment is the time to answer some medical questions.

The takeaway

Bank offered life insurance is not in your personal best financial interest. Take action immediately. You will have a superior policy and money in your pocket.

Decisions don’t get much easier than that, but you must overcome the inertia of doing what you have always done.

 


I help people have more income and larger, more liquid estates.

Call or email don@moneyfyi.com or in Canada 705-927-4770

One Comment on “Bank Offered Mortgage Life Insurance Is A Dumb Choice.

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