Today I was contacted by the bank that has my mortgage and they were selling “Creditor Insurance” coverage. “Creditor Insurance” is the Lenders version of the 3 normal main financial planning insurance products – Life Insurance, Long- Term Disability Insurance, and Critical Illness Insurance. The person on the phone was very clear this was not Term Life insurance but rather Creditor Insurance on my life that pays off the mortgage if I die. As a licensed insurance broker, and Mortgage Broker, I knew how this was going to go down but still thought I would get a quote.
Details are: 43-year-old male, non-smoker, $380,000 death benefit (just enough to cover the mortgage, nothing else as they can’t offer more than covering their own concerns.)
The helpful person on the phone from Totally Daffy Bank was more than happy to verify my age and then offer me a verbal quote of $115.50 per month. Worth noting, she stated during the recorded phone call for training purposes that she could not email me an actual quote but could only give it to me verbally. She never mentioned there would be medical questions (but there must be further on in the process) or that the price might change as a result of that interview but I also didn’t ask.
I have a spouse and it is a joint mortgage and so once I brought that up, I was told I can get a 25% discount if my wife were to purchase a policy for herself on the same mortgage. The helpful phone person did not offer a Joint First to Die policy which is triggered if either one of the policy holders die for the same death benefit. She was a professional salesperson and not a licensed insurance broker so it might not have occurred to her. Again, she said she could not send me a written quote, only general information available on their website.
Below is the verbal quote I received as well as quotes I ran from my Canada Life Software later the same day October 3, 2019.
Canada Life quotes are per month prices on Term 10 policies with a $380,000 Death benefit. Quotes were done on Oct 3, 2019 – Same day the Bank quotes were received verbally. The Canada Life quotes are based on age and smoking status only (same as the bank at this point), no Medical questions done. All stated numbers are approximate and for illustration purposes only.
As you can see, the savings per month are substantial by choosing an actual Life Insurance Policy and not a creditor insurance product. More specifically a Joint First to Die policy in this situation that stays with you for a 10-year period. It is also very important to note that actual Life Insurance policies pay your chosen beneficiary (the surviving spouse in most cases) and not just the mortgage at the bank. If the only Death benefit bought was the $380,000 in this case, I would think the surviving spouse would not want to use it all on paying off the mortgage but rather to pay down some debt and then also hold cash for the adjustment period of moving to one income.
It is also worth noting that the bank is willing to sell the creditor insurance to more than one person for the same mortgage as stated above instead of Joint policies. The key difference is that they are selling 2 separate insurances on two separate lives but with the one death benefit; so, a Joint Policy isn’t it? I guess not in Creditor Insurance. So, if there were 3 people on the mortgage, all 3 can buy a policy, get the 25% discount, but it is still only the $380K Death benefit paid to the bank if any of the 3 pass. Then the policies close as there is no debt anymore and so no reason for the other two to maintain that insurance.
If the 3 people in the paragraph above scenario bought their own Individual policies, even after the bank discount, would see a roughly 60% lower price for individual policies but they would each have $380,000 of Death Benefit that would stay with them whether or not that mortgage exists.
Actual independent policies owned by the insured people, who pick their own beneficiaries sold through a licensed insurance person is the right way to buy insurance products.
Feel free to contact me for an Insurance Needs analysis or if you have any questions about existing policies you have that you are not sure about.