There are many good reasons to have an individual life insurance policy to cover your mortgage rather than a bank policy, but the real difference lies in the contract language. A quick review of a mortgage life insurance contract from a leading Canadian Bank compared to a standard individual policy from a life insurance provider highlights very significant differences. These are important to point out, because very few purchasers actually read their full contract.
Banks have far more ways to deny a claim than a personal policy. For instance, they will not pay the disability claims for employees on strike or not working. If you need to refinance due to disability, it negates your insurance (this is a real possibility if you have a lengthy disability). If you die committing a criminal offence, even if there are no charges, they can deny the claim without proper inquiry of innocence.
Finally, bank prices are guaranteed to change at least every five years. Banks can even cancel your coverage with 30 days’ notice. Personal insurance may start out more expensive because the rates are guaranteed for at least ten years. This results in a higher initial rate than a policy with ever increasing rates – but life insurance is a long term game, with long term implications.
The vast majority of Canadians opt for mortgage insurance with their bank because they were pressured into a purchase at the time they took out their mortgage. Fortunately, cancelling this bank coverage is easier than you’d think. It can be done simply be visiting your bank and signing a form after you opt for a personal policy.
| Bank Mortgage Life Insurance | Individual Mortgage Life Insuarance |
| Should you die or become disabled within two years from the date coverage begins, the insurer will validate your answers to your provided health questions. All health questions must be answered truthfully and completely. Should you fail to disclose information or give incorrect information, the insurer may not pay a benefit at claim time. | Personal policies will also deny a claim for false information but their wording includes “material fact” which is missing on the left. If you fail to disclose a material fact that would have resulted in a different rating, then it will be denied. |
| Your policy/disability coverage terminates the date you declare bankruptcy. | This would not happen with a personal policy as long as the premiums are paid. |
| Provided you meet the terms and conditions of your Certificate of Insurance, when you die the insurer will pay the bank the insured mortgage balance(s) owing at your date of death, to a maximum of $750,000. | There is not limit on the amount of insurance you can purchase. |
| If you die as a result of committing a criminal offence, your policy will be terminated-regardless of whether charges are laid. | This is not mentioned in most policie. |
| No benefits are payable if you are not actively at work due to job loss, strike, or lay off. | Not mentioned in a personal policy – you get paid. |
| Refinancing or adding on to your mortgage while disabled will end current coverage and any benefits that may be payable. | Not a consideration in a personal policy. |
