I find it difficult to explain the benefit of mortgage insurance to my clients. Most clients do all they can to get their monthly mortgage obligations as low as possible (extended amortizations, larger down payments, haggling for the lowest rate….), which is why their immediate response to mortgage insurance is “no”. I always encourage them to take some time to think about the coverage and what it would mean for their family.

Let’s step back and look at exactly what “Mortgage” life insurance is. Unlike term or hole life policies, mortgage insurance only covers your mortgage. In the unfortunate event you or your family needs to collect, the insurer sends a cheque directly to the lender to pay-out your mortgage in full. You do not receive any of the money and you can not elect to use that money for anything other than the mortgage. This is why I always encourage my clients to think twice before declining even if they already hav life insurance through their employer. Your mortgage is usually the largest piece of debt most people carry. Having the piece of mind knowing it will be paid in full and therefore allowing your family to spend any other insurance money on remaining debt and expenses makes mortgage insurance a worthy expense.

Plus, if you look at the cost of insurance on a daily basis, it really isn’t that bad. Depending on your age and medical condition most policies cost from $1 to $5 per day. When you think of it, that’s really only th price of a coffee at Starbucks.

When you take the mortgage life insurance coverage you also have the option of adding on critical illness and disability coverage. These will cover your mortgage payments if you are unable to earn an income due to one of several critical illnesses or if you become disabled. Both of these can be added to your policy at a minimum expense to you and make sense especially if you are young an buying your first home. The younger you are the more sense it makes since you are more likely to experience a critcal illness than you would be of dieing.

I hope this helps to shed a bit of light on mortgage insurance and the role it can play in your family’s financial security. I have included an article that was written by Denise Deveau with Canwest News Service, and it clearly shows the benefits of getting insurance coverage.

Take a look at this quick reference to calculate the cost of your insurance

Mortgage Insurance Quick Quote

Ensure you’re insured
Buying a home? Don’t forget to sign up for mortgage insurance
Denise Deveau, Canwest News Service

June Jell will never forget the time she and her husband, John, sat down with their agent and turned mortgage insurance down flat.

Six months later, he died suddenly of a heart attack at the age of 59, leaving her struggling to keep up with house payments.

While she got back on her feet eventually, it wasn’t without sacrifices along the way –including the family home.

Now, she tells everyone she knows, “If you can get it, take it. We thought mortgage insurance was expensive at the time and because of our age, believed we could handle everything.”

In retrospect she realized, “It really wouldn’t have been that expensive after all. It would have been a blessing.”

Insurance of any kind is one of those things people like to put on the back burner or do without.

“A lot of homeowners don’t want to add the cost of insurance to their mortgage payment,” says Feisal Panjwani, a senior mortgage consultant with Invis Inc. in Surrey, B. C.

“One of the biggest mistakes they make when they sign their mortgage is declining insurance, thinking they will research it on their own.

“Nine times out of 10, they don’t get around to it. Then when something goes wrong, it’s too late.”

It’s not surprising some homeowners balk at mortgage insurance, especially when they feel they are already stretching their monthly payments to the maximum.

Especially in these economic times, however, you can’t afford to be without it, says Jennifer Hines, vice-president of creditor insurance for RBC Insurance.

“Clients at all stages need to make sure their mortgage is protected,” she says.

“Some have life and disability insurance, but the family still could be left holding a debt on what tends to be a person’s largest individual debt obligation.”

The ideal time to look at options is when you do your mortgage application. The most common are insurance tied to the mortgage itself or to the lender. Tying insurance to a mortgage balance is usually preferred since you can switch lenders and keep the same policy.

This reduces the risk of facing higher premiums or finding out you are uninsurable when you reapply at another bank, says Lorne D. Greenwood, a real estate lawyer based in Milton.

“Getting insurance through an independent broker to cover the same amount means you won’t have to re-qualify with each mortgage,” he says.

This is also a good choice when your mortgage balance decreases and you want to reduce your premiums.

Mr. Panjwani notes that it’s especially important for first-time or younger buyers to get coverage because the mortgage balance is high, insurance premiums tend to be in their favour and medicals are not generally required.

For those who think their disability and life insurance policies are enough if things go wrong, that may not be the case, warns Ms. Hines.

“Typically, disability policies will only pay 60% to 70% of your monthly income, so there is still a gap,” she says.

“You still need coverage for other expenses. We tell people it doesn’t have to be an either/or situation.

“We also suggest they consider whether they need to top up what they have, so they don’t have to be concerned about mortgage payments if there is a death or disability.”

When it comes to high-ratio mortgages, according to the Bank Act, anyone borrowing more than 80% of the value of the property must insure the mortgage to protect the lender against defaults.

The premium for this default insurance (not to be confused with conventional mortgage/life insurance coverage) is paid once at the time of the closing, at a rate that varies between 0.5% to 3.75% of the mortgage amount.

Title insurance is also an increasingly important option for protection against title problems and fraud.

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