Hello my fellow Burlington Dads!
Recently, there has been some media coverage about life insurance offered through major Canadian banks (click to see Globe & Mail Article). I thought that I would provide a bit of insight on the subject to make sure our Burlington Dad’s better understand the products offered from banks. If you prefer to watch a CBC Marketplace video, click here.
Did you know?:
- “The Bank Act” is very clear about Canadian banks not being able to sell insurance products. To get around these rules, banks are allowed to offer ‘creditor insurance’ against loans given by the bank. Creditor insurance is the most profitable product a bank has to offer
- Creditor insurance is often far more expensive than private insurance (I have an example below using Scotiabanks posted rates)
- Creditor insurance premiums increase every 5 years (see below)
- The beneficiary of creditor insurance is the bank (not your family)
- The amount of coverage reduces (as your mortgage reduces) — in other words, the product gets more expensive as you age, but the amount of coverage reduces
- Medical underwriting is completed post-mortem (ie. after you’re dead). Therefore, the benefit may not be payable because of poor health (even though you’ve paid premiums for years)
Private life insurance coverage you purchase through a broker/advisor has guaranteed costs (10, 20 or 30 years). The coverage never reduces. The beneficiary is your family (not the bank). Also, since medical underwriting is required up-front, 99.8% of all claims are paid.
How do I know if I have creditor insurance?
Each lender/bank has their own online services. At Scotiabank, when you login to your online banking, it clearly shows if you are insured and the costs for life, critical illness and disability. See a screenshot below:
How much does creditor insurance cost? How does it compare to privately owned insurance?
I googled “Mortgage Insurance rates” and was sent to this link. Below is a screenshot from that page:
Life Insurance Example: Assume a mortgage of $500,000
- Age 35: $750/yr vs. 10 Year Term $255/yr
- Age 40: $1,100/yr vs. 10 Year Term $350/yr
- Age 45: $1,650/yr vs. 10 Year Term $535/yr
- Age 50: $2,200/yr vs. 10 Year Term $766/yr
- Age 55: $2,750/yr vs. 10 Year Term $1,300/yr
- Age 60: $3,700/yr vs. 10 Year Term $2,231/yr
- Age 65: $5,450/yr vs. 10 Year Term $3,957/yr
Protecting your family is what’s most important. Replacing your mortgage insurance with private coverage is an absolute no-brainer for everybody.