How Good a Deal Is Your Bank's
Mortgage Insurance Plan?
by
Ivon T. Hughes
When you go to
the bank to get a mortgage, you'll inevitably be
asked to take out mortgage insurance.
The idea behind mortgage insurance is simply that if
something happens to you or your spouse then your
loan will be paid off which is good news for your
family and the bank. Most financial institutions act
like they are doing you a favor by offering you
mortgage insurance through their own group plan, but
are they?
The truth is
that you could probably get a much better deal and at
least an equal amount of protection by shopping
around for your own insurance policy.
Essentially, mortgage
insurance is no different than term-life insurance.
With both, your policy only lasts for a specified
period of time and pays its benefits if something
happens to you or your spouse. The real difference
comes down to how much control you'll have over your
policy and how much you'll pay for it.
If you choose
to use the mortgage insurance offered by the bank,
you will not be able to customize a policy to fit
your needs and you'll be lumped together with other
borrowers under a group plan. Because of this, you
will only have limited control over your policy. For
example, through a third party provider, you would be
able to choose your own beneficiary, decide how to
spend the proceeds if necessary, and cancel the
policy at any time. You would not have these options
with a lending institution.
Additionally,
the bank maintains the right to not renew your policy
and to cancel the policy when you sell the house. If
you find your own insurance provider, you can make
those decisions yourself.
The other big
difference is cost. A third party insurance policy's
premiums will not go up, so you would pay the same
premium today that you'd pay ten years from now. You
won't get that same guarantee from a bank which can
and probably will increase your premiums during the
life of the policy. In most cases, you'll probably
pay more through a bank anyway. In fact, you could
pay as much as 40% more than you would if you shopped
around and found your own insurance provider. Not to
mention that the policy you take out through your
bank will gradually decrease in value while a plan
you select from an outside source will be worth the
same amount during the entire policy period.
Of course, many
people don't mind paying more for their mortgage
insurance because it's more convenient than dealing
with insurance agents. The truth is that you can
easily find a policy that fits your needs and
provides affordable premiums via the Internet. An
organization, such as the Hughes Trustco Group, can
even generate quotes for you from multiple insurance
providers so you'll know that you're receiving the
best deal possible on the policy you want.
The bottom line
is that mortgage insurance is
important and should be part of your home buying or
refinancing preparations, but that does not mean you
need to pay more or let the bank make important
decisions for you. Instead, you should find your own
personal plan from a third party provider which will
let you stay in control of your policy and will save
you money in the long run.
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About
The Author
Ivon T.
Hughes is a Canadian life insurance and investment
broker who is licensed across Canada. You can deal
with him from virtually anywhere in Canada by mail,
fax, e-mail or telephone.