What is Mortgage Life Insurance like in Canada?

Very, very important. If you currently have mortgage protection or mortgage insurance, go and check your paperwork. Go and look and see who's taking the money out. Do you have a physical contract with your name on it or your spouse's name on it? If you don't have those things, you probably don't have any real insurance, and the probability of it paying out actually goes substantially downward.

Hey, it's Richard here. Really excited for you to learn a little bit more about mortgage insurance. This is a popular topic and there's a lot of misinformation about it. So I just want to clear up a couple of quick things. If you're thinking about either refinancing or getting a mortgage on a property and where you should be getting insurance to make sure your family is protected. Okay, number one, really, the most important thing to understand is that unless you get a contract, a physical contract from an actual insurance company, you don't really have insurance. What most mortgage insurance is is actually creditor insurance. It's offered by the bank or the lender, and. And it's not a real insurance contract. You have a mortgage contract, but you don't have a real insurance contract, which means you are not the policy owner. The owner is actually the bank or the lender that you're getting that deal from. Okay, a couple of really important things to be clear on and be aware of is, number one, underwriting. At what point is the underwriting taking place on that application? So when you get the mortgage paperwork and you're signing off because you've been approved for the loan, which is great, I mean, congratulations, you got a house, you got a mortgage. But when you sign that paperwork, you have to answer three or four or five questions that are very simple and very basic, but they've got a lot of information in them. And those questions are to determine if they can actually give you or grant you the coverage. However, they generally don't send a nurse out to draw blood and do all the associated things and ask you a lot of invasive medical questions to actually confirm, do you really qualify for this? Okay, so underwriting in those type of applications, generally speaking, happens what's called at the time of claim. So just think that through for a minute. What does claim look like? Well, if someone's died and we're hoping to get the mortgage paid off, that would be a claim situation. Well, that's when they're going to go dust off the paperwork and take a look at how you answered those questions. And do they really. Should they really be paying the claim out or not versus with an actual insurance company, what they do is underwriting at the time of application. So just like you went through underwriting to get your mortgage loan and they had to prove that you had the financial ability to pay them, pay the loan, and they could actually give you that mortgage, you had to go through an underwriting process. The same process exists in insurance, so life and disability insurance, etc. So you actually work with an insurance company, they usually send a nurse out or they ask you, they do a telephone interview and ask you a ton of medical questions and things about your family history, etc. And then they're able to stamp that and confirm, yes, we can absolutely insure you. We're going to issue you a contract. Then when you make premium payments to bind that contract together, you're making it to the life company, you're not making it to the creditor or the lender. Okay? So that's really fundamental. So if nothing else, that's the only thing you take away from this video. Very, very important. If you currently have mortgage protection or mortgage insurance, go and check your paperwork, Go and look and see who's taking the money out. Do you have a physical contract with your name on it or your spouse's name on it? If you don't have those things, you probably don't have any real insurance and the probability of it paying out actually goes substantially downward. In fact, there's a great CBC Marketplace expose that was done on this a number of years ago. It's called In Denial. I believe it's available on YouTube, etc. You can certainly search that out. There's a whole 10 minute segment and they talk an interview to a whole number of Canadian families who are denied their claims because they had insurance that was underwritten and at the time of claim instead of at the time of the application. So very important, protect your family. It's so critical that you do that. Now here's the other thing. People get mortgage insurance because they get a house and they want to pay the mortgage off. That's the whole idea. Here's your new house. We're happy we got the new house. And the idea is, okay, I got this mortgage. Let's just say it's $500,000. I'm starting way up here as the mortgage goes down and down because I'm making mortgage payments. Well, I want to make sure that mortgage is paid for so that my family, my spouse isn't left burdened with those payments. I'm not leaving any debt behind. A couple of Problems here. I want to talk to you about this thing called Cost Creep. Really, really important. Now, it's not just like, you know, some guy that's, you know, walking around with a trench coat. Like Cost Creep is about your money and how much of your money is going to go to someone else versus staying with you for the things that you actually want it to do. Okay? So every time that you make a mortgage payment and you reduce the mortgage balance with creditor protection in this format, if it's just done with the creditor, the only thing that's actually covered is whatever the remaining balance of the loan is. Okay? So you're paying the same premium, a level cost of premium, but you're paying it for a declining amount of money. Think that through for a minute. I'm going to pay the same amount of money regardless of what phase I'm at over this 25 year period. But I'm going to be paying for a smaller, like a declining amount that's going to get paid out. Okay, now contrast that to when you get actual insurance. For an example, let's just say basic term insurance with a life insurance company where you could pay a fixed level amount for a period of years. Usually it's 10 or 20. I would usually recommend, depending on your age, you probably stretch it out to at least 20 to cover a lot of this. But you have a level fixed payment and you actually have a death benefit, tax free, that's generally much higher than, often much higher than this amount here. And the rates in Canada at least, anyway, a lot of these rates have come down substantially over the last decade or so. So you get some pretty good deals up. The key thing is that you actually own a contract. So if your mortgage balance, let's say you're out at year 15 and your mortgage balance is $250,000, but you have $500,000 of coverage, maybe you've had some children along the way, you've increased some debts on the other side or you have more responsibilities that need to be taken care of. Well, now you have a lot more money that shows up to solve problems in a tax free check that the Canadian government can't get their hands on for the people you love and care about. And then if they want to pay off the mortgage, the rest of your family can do that. Or they could say, you know what, let's just hold off and take some time. We're grieving, we're not really sure what we want to do yet. Let's just make mortgage payments for the next you know, six to 12 months. Make some good, clear thinking decisions about how we want to put this capital to work for the legacy and for the benefit of the family long term. So it gives you one of the most precious gifts of all, which is time. We cannot replace time. And the more we have time to stop and to think and we're not, you know, emotionally laden by the circumstance that's happened, we're in a much better position, you know, mentally to be focused on how do we want to put capital to work for the benefit of our family over a longer time frame. It might be paying off the mortgage is the best option, but for you it may not. And that really depends. If you're a real estate investor and you've successfully built up a great portfolio, you might say, hey, geez, here's 500 grand, let's pay off some immediate debts. I'm actually going to go take and now buy three or four rental properties with the money because I could increase my cash flow substantially. The end result is you get to decide because you're in control. When you have mortgage protection, that's creditor protection with a lender, you don't have any of that control because assuming it pays out, which we don't know for sure if that will be the case, assuming it does, all it's going to do is pay off this loan so there's no more payments. Okay. So you're really not in a strength position in that environment. Okay. Next thing about cost. This is actually the most important problem. So you're paying this level fixed cost of premium for a declining balance of mortgage value. Here's where the real issue Roughly every five years or so, most mortgages in Canada are up for a renewal. Okay, so there was an article in Money Sense magazine. I think it was going back a number of years, roughly like 2013, 2012. And at that point in time, they had indicated that the average time frame that a Canadian would keep a mortgage on the books on a fixed five year contract was about three and a half years. That means we were breaking contracts because we've turned into a transitional society. We get a job across town, we get a job in another province, or we have to, we had another child into the family, we need a bigger house. So we're looking at selling the one we're in and going and buying something new. Well, when you go to buy something new, you're often buying at a higher market price at a bigger size of property. So now your loan value went up. Well, if you've got this loan and you're already a part of the way through it. Now you're five years older and you're buying something higher, which means you have to re qualify. And if you don't requalify, they're not even going to give you the coverage. So you run the risk of not being covered, number one. Number two, because you're older, five years older. When your spouse is five years older, assuming all the medical stuff is the same, which may not be the case, you're also now paying a higher premium because of age just because you didn't lock in something that you owned in advance. Okay. Very, very important. That process happens for people throughout their entire life. And the end result is money that should be staying with your family in some way. Money that could be adding financial value to you. And the people you care about is walking out the door to the creditor because we didn't think through the longevity of this experience. So cost creep is a real issue. You've got to be very mindful of that. Now for our clients and people that we work with, they tend to practice this concept called becoming your own banker using infinite banking concept. So we often are able to set up insurance or look at someone's entire situation and say, hey, here's a couple mortgages that you have. You're paying creditors over here, you're paying creditors over here for insurance. Why don't we take some of the flow of that money and redirect it to insurance that you own. Now you can control and, and along with some of your other cash flow you're working with, we can create a system where you can start to build equity. And just like you want to build equity inside of the house, one of the reasons why most people buy a property is to build equity and to have more control. The exact same reasons that people would want to do that and have home ownership are the same reasons that people tend to look at that concept as a financially viable way for them to move forward in their life and to help create tax efficient additional passive income at retirement time, even on a tax free basis. So it's a very powerful program and you're able to build equity inside of an insurance contract that you own and then you have total liquidity over it. It's basically like a glorified savings account where you have a ton of control and you can create a constant compounding effect on your money. So if you're going to look at protecting the home or protecting the mortgage or protecting your debts, be very, very mindful of creditor protection. Start to do some research. Recognize and understand that if you don't get a physical contract or if you're not receiving, you know, if a nurse isn't coming to see you or you're not, you know, being asked a whole bunch of medical questions by someone on the telephone from a life company, I mean, you probably don't have real insurance coverage. Okay. And real thing I'm going to. Another thing I'm going to touch on just very briefly outside of the scope of this is group plans. So a lot of people work for an employer or they have a group plan or a union or whatever that is. And just be very aware and understand that the insurance that's inside of those group plans is not yours. So often it will pay out if you, you know, you as long as you die or whatever while you're working with that company. But if the company goes under or they change the benefit provider or you get to a certain age, you don't have it anymore. You don't have any more coverage to protect your family. So do not rely on group plans to be part of your financial.

Your financial objectives because they're not yours. And those things can be changed without your permission because if you don't have a contract and your name listed as the policy owner, you can't make the adjustments. When you are the contract owner, you're in the power position. Always remember that. I hope this was really helpful. Hope you got a ton of value out of this. Be very mindful, ask a ton of questions. When you're looking at getting a mortgage or getting mortgage insurance, please be careful with it. Make sure you get proper coverage that actually will be there when you need it most to protect your family and your loved ones. It's so critically important. Thank you so much.