Purchasing life insurance through a bank to protect a personal loan or mortgage is an easy and convenient way of buying insurance.
That convenience, however, may end up being surprisingly costly. When you’re borrowing money, the bank may suggest purchasing life insurance dedicated to pay off the loan balance. This is good advice. Purchasing this insurance through the bank may not be such good advice.
Here are some things to consider when purchasing insurance through a bank:
• Health status is not verified until a claim is made which means that you could be paying premiums for many years and not be eligible for the insurance coverage
• If you move your mortgage to another lender or refinance with your current lender, insurance benefits cease! You must re-qualify for your coverage
• If you miss a mortgage payment, your insurance policy may lapse
• Bank insurance is decreasing term insurance, so if the loan principal is paid down faster than anticipated, your insurance premium does not go down
• The bank is both the owner and the beneficiary of the life insurance contract, so the death benefit must be used to repay the mortgage. Depending on interest rates and other economic factors, this is not always in the surviving family’s best interest
• The insurance company, through a bank contract, may have the right to increase premiums at any time.
Alternatively, when you purchase life insurance privately through a licensed insurance consultant:
• Health status is fully verified up-front to avoid denial of claims
• Premiums are guaranteed
• Coverage cannot be cancelled as long as premiums are paid
• The benefit will be paid directly to the family or estate and not to the bank
You’d be wise to speak with an insurance consultant about your particular situation. We have a delightful insurance consultant on our team, so send me an email and I’ll set up a conversation for you.
Heather Holden, PhD, CIM
Wealth Advisor, ScotiaMcLeod