*As published in the Spring 2014 issue of Life Cents Magazine

You bought a house or you’re renewing your mortgage at the bank. This means signing a litany of documents and amongst them a mortgage insurance application. Usually this is a one page form with a few medical questions and the monthly premium at the bottom. You’re in a daze of paperwork and of course the security of mortgage insurance seems to makes sense, so you sign at the bottom of the page. Done deal, right? Think again. Creditor mortgage insurance is not the same as a personally held policy purchased through a broker and the differences might make you want to reevaluate your protection choice.

The biggest difference between most mortgage insurance coverage versus a personally held policy is when the policy is underwritten. Underwriting is the process where the insurance company “investigates” your health to determine if you are coverable. Most mortgage insurance is underwritten at the time of claim, which means once something happens to you, for example a death or disability, your medical records etc are reviewed to determine whether you would have been approved for coverage when you applied. 

Despite your seemingly honest answers on the application, you may have incorrectly responded to one of the questions. It can be as simple as forgetting to mention your doctor noting high blood pressure when he did the cuff test in your annual check up. It doesn’t matter if the cause of death is unrelated to incorrect response – your application is considered to be erroneous and your coverage is void.

If coverage is denied, your family/you will receive back the premiums paid and that will be all the money received – instead of having your mortgage paid off in the event of your death or your payments covered in the event of your being unable to work. This factor alone causes many people to opt out of creditor mortgage insurance and purchase their own policy, for the security of knowing they’re covered.

Another major factor to consider is flexibility of coverage. With credit mortgage insurance, the lender is the beneficiary and the amount of coverage is tied to your mortgage balance. With an individual insurance policy, you pick who the money goes to and how much coverage you desire.Usually the spouse is the primary beneficiary, so they have the opportunity to use the money for something other than paying off the mortgage. Also, if you are disabled and unable to work, you may want disability insurance coverage for more than just the amount of your mortgage payment, especially if you don’t have disability coverage with work.

Before declining the insurance offered by your lender though, you should consider whether you’re actually going to get the coverage from a broker immediately. If you’re busy and you know that you won’t do it right away, you might want to take the coverage offered so that you have some protection while you choose and apply for an individual policy.

Insuring your mortgage is key to the financial security of you and your family. It’s important to look at the options available, weigh the pros and cons and make the best decision for you. Because at the end of the day, your house is your biggest investment and financial obligation and you want to make sure it never is in jeopardy.