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Corp. and may not be reprinted without permission in writing.
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Brampton Mortgage Cancellation Insurance – Blow the Cover
(Exactly what is it that you do not know about “your policy?”)
Disclaimer: Remember, “real estate is local.” And this article speaks to insurance from the real estate perspective. This situation may not apply at your bank. Check with your own banking institution. This article is just meant as a guide to those who have never asked questions, to raise the topic for discussion purposes with and for those to whom it matters.
I just learned from a banking investment advisor, who has years of experience, that mortgage cancellation insurance when bought from a bank, apparently does never become an "actual" policy, unless and until there is a claim.
Then the banks try desperately hard to get out of paying the claim, is the word on the street, looking for excuses in the fine print. Remember why you bought this “life insurance?” To protect your family in the event of your untimely passing? Who exactly is the “owner” of this policy? And who is the named insured? Who is the beneficiary?
It seems that when a death claim is made on the “policy,” then the bank goes into action and an actual policy is initiated with a carrier, and only then. In the meantime all the "premiums" paid by the homeowner just sit in the bank’s suspense account named for the purpose. What does the bank actually do with the money in the suspense account? What have they done with “your money” that you have paid in premiums for all those years?
Is this scenario possible? Perhaps a distraught spouse or other person on title isn’t paying full attention, and the preauthorized amounts just continue to be deducted at source out of the joint account, even so the mortgage was long ago paid out. You maybe thought you, the survivor, was the one being insured as well as your spouse, and you would just continue to let the preauthorized amounts be deducted, maybe thinking your children would lay claim to this “insurance” policy if and when you passed away. In particular, people whose first language is not English, need to watch this carefully.
Does the remaining spouse, or other person(s) on title get the money, the face value of the policy, at any point in time? Never, it would seem. Once again: read the fine print. When you sign on at the bank with the person who has arranged the mortgage, likely that person gets paid a bonus if he or she is able to encourage you to take out an insurance policy through them. That is, of course, why they explained how important it was for you to buy the insurance. You could have gone anywhere to buy the insurance.
Is the public aware that when they have a mortgage, the bank will want insurance to be bought, ideally through them? Let's just use as an example: you have a 150k mortgage with the bank.
You pay and pay and pay some more, and eventually you are able to get your mortgage nearly paid off; it now has a balance of 40k after all the years. And you have been paying premiums on a 150k mortgage cancellation policy all those years, not on the diminishing balance. Very expensive. You die.
You always had thought your family would get that 150k insurance policy, minus the mortgage balance, and you rest assured now that there is almost no balance left on the mortgage that at least if something happens to you, your family is protected, and they will get the claim on the policy. No, they are not protected, apparently. Read the fine print. And then, read it again. The insurance you had paid for all those years will pay the bank 40k or 10k or whatever is the remaining balance on the mortgage. End of (insurance) story. There is no payout to the survivor(s). By the way: do you know who is the beneficiary of this mortgage cancellation “policy?”
What happens to the rest of "your money," (the face value of that policy you
bought to protect your family?) Did no one tell you that you were not really buying
that policy to protect your family? You were really buying that policy to protect the bank, but of course if something did happen to you, the mortgage would have been paid. But what if something happened to your spouse or whoever else is on title at your house?
Well, as it happens, the rest of the money is "not your money." There is no rest of the money. All the premiums you paid over the years, continuously, based on a 150k
mortgage, just evaporate into that suspense account back at the bank. The bank gets to keep the money collected in premiums, because remember, there was no official “policy,” just a holding pattern, until you died. Has anyone ever asked to see this actual “policy?” The one that was paid for, often month by month by month, for years?
Of course when you die, the premiums do stop (don’t they)?. Your family does
not have to continue paying out the premium after you die because likely the insurance was only on you. At least the mortgage “balance” is paid out, so there is no reason for the premiums to continue. Bank risk protection insurance. Check who is named as the “insured,” on what you think is a life insurance policy. Check who “owns” the policy. Ask for a copy of the “insurance” you are considering signing on for. Review it before signing. If you have already signed, do you have the right to cancel? Ask.
If you have had that insurance with the bank for forty years, figure out the amount of the total premiums you have paid. You could have taken a regular term life policy for 150k through any insurance company, and if you were young, for much less premium likely, with the same purpose of paying out the mortgage at your passing, but at least, then, your family would get the "rest of the money." The face value minus the mortgage, if so designated, paid to the beneficiary.
Does the public know this? Did you know this? Does your family know this? A term policy twenty years ago would have cost you much less money then than it will now that you are twenty years older. But think it through, and perhaps in the interest of protecting your spouse and or your family, maybe get some kind of term insurance now, anyhow.
And, read the story at the link about the man who was certain his deceased wife had been insured, through the bank where they had both been insured, he thought, with a mortgage cancellation insurance package. She “was” on title and when she passed away unexpectedly shortly after they married and had bought a house, he was in for a very big surprise. http://www.carolyne.com/
Find out WHO exactly is insured when buying mortgage cancellation insurance, at the bank. It likely won’t be EVERYONE on title, and/or those named on the mortgage documents. You might all want to insure each other, by buying a term life insurance policy. Just a regular policy from a regular insurance company. Always ask questions.
Sadly, we don’t always know the questions to ask.
An important note to end on: the coverage through the bank isn't guaranteed. They can usually change or cancel the policy at any time. Should the bank notify the homeowner that the coverage is cancelled or changed in some way, that decision could impact the homeowner in a big way, if subsequent to signing on, he perhaps discovers a health issue that might then prevent him from acquiring insurance elsewhere. Before you sign any documents on the bottom line, seek the advice of your own personal advisor.
Always best to buy your own insurance, direct from an insurance Broker. Same thinking applies in real estate. Hire a professional REALTOR® to represent your own personal interests.
Copyright Carolyne Realty Corp.
Brought to you, courtesy of Carolyne
You may also want to read:
Divorce, Separation, and/or Death of owner on title
(Home Ownership and Mortgage Cancellation Insurance)
*This material is copyrighted by Carolyne Realty Corp. and may not be reprinted without permission in writing.
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