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February 2008 - Understanding Bank's House Mortgage Life Insurance

Understanding Bank's House Mortgage Life Insurance

☳ by Adam Aspilla

Buying a house is one of the biggest investments of your life. Since the purchase price is in hundreds of thousands of dollars, a mortgage loan is necessary to finance the balance of the purchase price after the down payment. Mortgage amortization is up to twenty five years. Meaning you could pay the mortgage loan in full after 25 years if you pay only the regular monthly payments.


To protect your love ones in the event of your untimely death, before the mortgage loan is paid in full, you need to secure a mortgage life insurance to pay off the balance of your mortgage. You can get a mortgage life insurance through the bank, where you have your mortgage or from your life insurance agent. Usually, house mortgage insurance through a bank is not always the best. It is wiser for you to compare it with the mortgage life insurance through your life insurance agent could provide.


Through a bank’s house mortgage life insurance, the face value is based on a diminishing balance of your mortgage. Meaning, if the face value was $150,000.00 at the time you took the insurance to cover your mortgage loan of the same amount, and after five years your mortgage balance owing was down to $100,000.00, and you die, the insurance company would only pay $100,000.00 not $150,000.00 just enough to pay off your mortgage balance.


To further illustrate how the diminishing balance of the face value works, in the above scenario, although your premium payment was based on the face value of $150,000.00, the amount the insurance company would pay is only $100,000.00 and much more lower if the mortgage balance had been down after ten or more years before you die, yet your premium payment is based on the $150,000.00 face value.


On the other hand, if you get your mortgage life insurance through your life insurance agent, the face value of $150,000.00 is permanent, even if the balance of your mortgage is only a $1.00 at the time of your death. Your beneficiary would still get the full amount of $150,000.00 for your mortgage life insurance face value is not based on the diminishing balance of your mortgage.


In addition, usually your premium is much lower through your life insurance agent, than the premium you pay if your mortgage life insurance was through a bank.


Understanding mortgage life insurance through a bank and the difference with the mortgage life insurance through your life insurance agent would help you save money in terms of premium, not to mention your beneficiary is guaranteed to receive the original amount of the mortgage life insurance face value.


Adam Aspilla is a Senior Financial Counselor of the Debt Clinic of Canada Inc. and the author of the book, You Can Negotiate All Your Debts. He also writes a biweekly column, “What Matters In Life” in “Taliba Newspaper. For free initial, professional and confidential consultation, please call 905-306-7572.