What is creditor Life and Disability Insurance?

Creditor insurance (life and disability insurance) protects the borrower and/or their family in the event of death or disability. Not to be confused with default mortgage insurance (offered by CMHC or Genworth) which protects the lender in the event that the borrower defaults on the loan.

Borrowers with Dependants: The death or disability of a borrower can severely damage the ability of that borrower or their family to repay the mortgage loan. This can result in the loss of the family home. In the event of death of a single borrower it may not seem as important, however, they may wish to leave their clear title property to their parents or another family member. Single borrowers will greatly benefit from the disability insurance as they may depend solely on their income to pay their mortgage and expenses. Most people do not remain single for the duration of their life. Many are likely to acquire a partner and family at some point that may be dependent on them.

Wealthy Borrowers: In some cases, a borrower or their family may have sufficient wealth to pay off the
mortgage in the event of their death or to continue mortgage payments in the event of their disability.

Every Mortgage Should Be Protected: For most borrowers wealth and/or being single are not viable ways of addressing the risk of losing their home due to death or disability, the most common way to protect yourself is through creditor mortgage insurance.

There are 3 basic sources for purchasing life & disability insurance:

Mortgage Brokers: Mortgage brokers offer life insurance and disability insurance (or critical illness insurance) to borrowers as a part of their mortgage origination service. Unlike term life insurance, these programs usually also cover any costs associated with pre-payment penalties and discharging of the mortgage. One of the biggest benefits is that these policies are transferable from lender to lender. No more worrying about losing your insurance or having your premiums increased when you transfer your mortgage to a new lender to take advantage of a more competitive interest rate.

Lenders: Lenders may offer their borrowers mortgage creditor life and disability (or critical illness) insurance as a feature of the mortgage loan. If you want to switch lenders in the future you may lose your insurance and be subject to higher premiums on a new policy. In some cases you may no longer qualify if you have become sick or injured.

Insurers: Borrowers may purchase term life insurance from an insurance company (usually from life insurance agents or financial planners). They may also purchase individual disability insurance directly from an insurance company, but this type of protection may be more expensive than insurance available through lenders or mortgage brokers it may also be subject to significant underwriting scrutiny.

Automatic Acceptance.

Some insurance companies provide automatic acceptance of all applicants who have a mortgage under $300,000 and who answer “no” to all four health questions on the application.

Acceptance or Waiver:

The insurance company usually pre-completes an enrollment form for the borrower and will calculate a quotation of the premiums. If the application is accepted the insurance company provides a certificate of insurance or if not accepted the insurance company will advise the borrower. If the borrower does not wish to accept insurance, they must sign a waiver form for the mortgage broker.

Please go to the link below to review a video that will demonstrate the importance of mortgage protection.

http://mortgageprotectionplan.ca/youtube.php

Mortgage Brokers and Agents encourage borrowers to seriously consider mortgage protection but it is illegal for us to advise borrowers about the merits of one mortgage Insurance plan to another. All questions should be directed to the Mortgage Protection Plan 18666774366 , the individual lender offering insurance, or their insurance agent.