On February 6th, 2008 the CBC show Marketplace provided a most valuable bit of public awareness to an issue that, up until then, was not widely understood. The issue is that of mortgage insurance. Namely, pitfalls of bank owned creditor insurance versus the value of having individually owned life insurance. The complete episode can be found here on the CBC website. I'd suggest you watch it when you have a moment. It's worth seeing if you currently have or plan to get a mortgage.
Let me begin with some brief explanations.
When you get a mortgage, it's generally considered to be advisable that you have some life insurance to cover the value of the mortgage in the event of death. For example, if you have a family you may wish for them to be able to stay in the family home in the event of your death.
Usually, when you get a mortgage, the mortgage officer or broker will offer you the opportunity to insure the mortgage. The product that they are offering is bank owned creditor insurance. The insurance is paid for by you, and owned by the bank. In the event of your death, the mortgage is subsequently paid off. Well, that's the general idea, anyway.
There are a number of problems with the bank owned creditor insurance. Of them, the most worrisome is that they are not underwritten until time of claim. What this means is that the contract essentially states that, provided that you are insurable without ANY additional risk considerations, they will honour the insurance contract AFTER they have had a chance to do a thorough investigation AT THE TIME OF CLAIM. However, because there are very, very few cases that meet those criteria, many claims get denied. This is because many common illnesses and sicknesses for which you have been treated warrant further investigation, which is an additional risk consideration.
The point is not that you were a riskier case, the point is that everything needed to be disclosed. Where this thing tends to go off the rails is that, when answering the brief questionnaire presented by the mortgage agent, people tend to think in terms of "serious issues" rather than answering the question fully and completely, and are not coached adequately on how to answer the questions by the mortgage agent. The mortgage agent, by the way, is not a licensed insurance professional, and therefore does not have the necessary training with regard to insurance law, practices, procedures, or documentation. Have a look at the first question in the questionnaire. How would you answer that question? What if you didn't actually read it, but rather had it read out loud to you, word for word, at conversational speed? Would you answer it "no"?
Let me ask you another question. Have you been to the doctor at all, for any reason in the last two years? If so, you should have answered yes to that first question.
The sad thing is that many, many people answer "no". As such, they are denied claims because they are considered to have answered fraudulently. At claim time, the underwriters have access to ALL of your medical records in order to determine whether or not you meet the claim criteria. And the real issue here is that the mortgage agent or broker bears no liability for having done a shoddy job of the application. They are not held accountable.
Contrast this with a licensed life broker who IS held accountable for doing shoddy work. The licensed life broker or agent can be fined, or lose their license for not acting in their client's best interest at ALL TIMES.
The long and the short of it is that you would have a better measure of protection if you were to have a product that was underwritten at the time of application. In this circumstance, the insurance company does an investigation into your insurability prior to offering you a contract of insurance. However, once offered the contract, provided that you have not lied on the application, the insurance company MUST NECESSARILY pay out the claim at time of death.
Herein lies the difference: with mortgage (creditor) insurance, they decide whether or not to pay you at the time of claim. With individually owned insurance underwritten at application time, the insurance company determines how much to charge you in return for a promise to pay at time of claim.
Of the two, the individually owned insurance provides better knowledge that the financial risk has been managed.
Have a look at all of the information regarding this issue on the Marketplace site. There is a table that further details the difference between the two types of coverage, and a slough of comments from the public regarding the issue. It's a valuable read.
Speak to your financial advisor. This is important stuff.
Wednesday, June 11, 2008
Mortgage Insurance - Why Using Individually Owned Insurance is the Right Answer.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment