You bought your dream home and like most Canadians you helped finance your purchase with a mortgage. Being one of the biggest purchases you will have made in your lifetime, it would be prudent to protect the financial risk of not being able make mortgage payments due to illness or premature death.
However, there are significant differences in the types of protection offered by lending institutions. So much so, that you could be putting yourself at risk without even knowing it by taking mortgage insurance offered by these lending institutions.
There are significantly better guaranteed options you can purchase that are less costly and you don’t run the risk of being denied a claim. When you purchase insurance that is owned personally you gain in many ways:
- Individually owned insurance policies have the premiums based on your own individual risk and a predetermined amount of coverage which can cost less because you are not pooled into a one size fits all policy and not subject to provincial sales tax. In fact homeowners in excellent health with a good family history can possibly receive discounts on insurance premiums.
- Bank mortgage insurance provides decreasing coverage as the mortgage decreases but your premiums remain the same. Effectively, that means the cost per $1,000 of coverage increases at each mortgage payment. Personally owned insurance policies premium costs are for a predetermined amount of coverage that is fixed. This means your beneficiary will receive the full original coverage and not a reduced amount.
- Bank Mortgage insurance is designed to pay off the bank; therefore the insurance payout will be made directly to the bank and you have no control over it. With individual life insurance, you choose the beneficiary and it’s up to the recipient to decide what to do with the insurance proceeds as is most appropriate.
- Bank refinancing or changing institutions will require you to re-qualify for bank mortgage insurance with the new financial institution, at likely higher rates. Personally owned insurance remains with you no matter how many times you move or refinance.
- Personally owned insurance can be partially or fully converted at anytime to a permanent insurance policy without any medical evidence.
- Bank Mortgage insurance goes through a post-claim underwriting process, which means your claim could be denied if your health does not match the simple application. With a personally owned policy, risk is assessed for approval at the time of application with an underwriting process using factors like your age, medical health history and medical exam that help to determine your coverage as well as your premiums costs. Watch this.
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Before you agree to purchase Mortgage Insurance from your lender, look into personally owned insurance that is designed to protect you and your loved ones, not the lender. If you already have bank mortgage insurance, it can still be changed but don’t cancel it until you have the proper one in place.
Contact me for more information about how this could work for you.
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