So after years of planning and saving, you’re ready to move into your dream home … should you also opt in for mortgage insurance, to be paid with your regular mortgage payment to your lender?
Not necessarily, says Stu Tunheim, a consultant with IG Wealth Management in Courtenay.
Yes, given this is likely the largest purchase you’ll make, you want to be prepared for any unforeseen circumstances that might come your family’s way – that is what insurance is for, after all. It’s just that “mortgage insurance” may not be the best way to get that protection.
Why? When you sign your mortgage papers, your lender or broker will typically offer you insurance – essentially, if something happens to one of the main income-earners on the mortgage, the amount left on the mortgage will be paid out.
Here’s the problem: Standard mortgage insurance pays out on the declining balance – the more you pay down your mortgage, the less there is to pay out. At the same time, your payments can stay the same, or even rise, if you’re in an older age bracket when you renew your mortgage at the end of its term.
In addition, because you simply sign a form to get mortgage insurance, there’s no underwriting involved. With underwriting, the insurer first evaluates to determine you’re healthy, then based on that assessment, creates a contract with you for the insurance. This means you don’t fall victim to the “pre-existing condition” caveat for not paying out an insurance policy.
Alternative options for better protection
The good news is that you have alternative insurance options that provide better protection, Tunheim says.
For example, he often recommends a personal protection policy for the amount of the mortgage. It will often cost less than standard mortgage insurance, and because it’s underwritten, provides the peace of mind you want. The payout amount also stays for same for the duration of the policy.
“Don’t protect the lenders – they do well enough – protect your family,” Tunheim advises.
For those looking to replace an existing mortgage insurance policy, it’s essential to leave it in place until you have a new, signed policy, he emphasizes.
And for those eying a home purchase down the road, you can even get pre-approval for your insurance, just like you do for your mortgage, so everything is in place when you need it!
“Insurance is quite simple – it can start with a phone call. We’ll look at where you’re at and what you want to protect, then we as brokers will shop around for the best product,” Tunheim says.
READ MORE: Why life insurance is important to your financial well-being
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Courtenay’s IG Wealth Management team is working remotely, but you can reach Stu on his cell at 250-218-6693 to set up a call or a video conference. You can also email him at stu.tunheim@ig.ca and find other investment tips on Facebook or on IG Wealth Management’s Twitter page.
Investors Group Financial Services Inc.
Trademarks, including IG Wealth Management, are owned by IGM Financial Inc. and licensed to its subsidiary corporations. This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities. Stu Tunheim is solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant.
