Banks have been acquiring life insurance companies in the recent years to overcome regulator's resistence to co-mingle the banking and insurance operation due to the potential for conflicts of interest. Banks however, have been merchandizing some forms of life insurance for years where life insurers are the underwriting companies. Why? The principal reasons are two fold. First, to create an additional profit center to help offset operating expenses. Second and probably most important, to keep repayment defaults caused by death or disability minimized. You see the protection offered by creditor insurance is really to protect the bank not the borrower. The fact that that the borrower is also a beneficiary of the coverage is a "value added".
The type of insurance banks merchandise is called "creditor insurance". This is typically used to cover any outstanding balance of a loan. The most common form of creditor insurance would be mortgage insurance, used to pay off the outstanding balance of your mortgage should you die. Regardless how it is presented to you you are not compelled to buy creditor insurance to qualify for the loan or mortgage. It is against the law to make you think it is a "condition president" to qualifying for the mortgage.
If you want to protect your family, and it is a good idea to do so, you can arrange to do so independent of the mortgage process. There is a common myth that bank insurance is cheaper than what you pay if you buy coverage from a life insurance company. To keep the acquisition of the coverage as simple as possible and premiums competitive, coverages and benefits of the products merchandized by the banks have been modified when compared to individual life insurance offered through the traditinal distribution systems of life insurers. If you are buying life insurance or critical from a bank, you need to compare carefully how much you are paying and more importantly what coverage you do have or NOT have. Many are paying too much at the bank and and not getting full coverage and they need to shop and compare price.
Apart from price comparison, there are other differences between a mortgage/creditor life insurance policy through your bank, and your own policy direct from a life insurance company.
|Insurance Company Plan||Bank or Trust Co. Plan|
|1. The Plan is yours! It's Portable. If you move to a different bank for a better mortgage rate you don't have to apply for the morgage insurance again.||The coverage terminates when you re-finance your mortgage, sell your house, pay off your mortgage, or if the bank forecloses.|
|2. You control your Plan.||The bank owns & controls the operation of the plan.|
|3. Plan premium rates guaranteed in advance. Cannot be altered.||Group premiums can be changed on a group basis. Your rate may change when you start a new term. You may have to reapply and not qualify.|
|4. You may purchase any amount. More or less than the mortgage amount.||The coverage is for the outstanding debt. As your debt reduces, your insurance decreases.|
|5. It's your insurance plan, only you can cancel.||The group plan can be canceled by the bank or by their insurer.|
|6. You may upgrade to a more versatile plan regardless of your health.||Bank Plans are typically not exchangeable to other forms of coverage.|
|7. Your Plan, you decide who benefits. Your beneficiary will receive the proceeds They decide to pay off all or some of the mortgage. The proceeds of a life policy are protected from all creditors, including a bank.||The bank is the beneficiary and the proceeds automatically pay off the mortgage, regardless of your dependent's the wishes or circumstances.|
|8. If you insure both the husband and wife individually then both policies pay benefits in the event of both deaths. (our suggestion)||If you and your spouse are both insured on a bank mortgage policy, then only one payment is made in the event of both deaths.|
|9. You are getting advice and purchasing protection from a licensed professional versed in risk needs analysis. Often a comprehensive strategy can incorporate debt protection like mortgage insurance.||You are buying insurance like a commodity from a bank employee who may or may not be trained or licensed. Certainly their focus is lending with insurance being an "after market" profit generator.|
|10. Your personal medical and other insurability factors are kept private from your lending institution. A prudent business posture.||The bank, on larger loans can be aware of your medical history. Can an adverse medical history jeopardize your negotiating posture with the bank? One wonders?!|
|a) If death occurs while committing a criminal offence. (e.g. drunk driving,car/boat/snow mobile; illegal protesting)||Not covered|
|b) death related to use of illegal drugs or misuse of prescribed medications||Not Covered|
|c) any nuclear, chemical or biological contamination due to any act of terrorism;||Not Covered|
Many Canadians however, are usually surprised to learn, that they often end up paying the bank more than what you would pay if you purchased directly from the life company.
Check out our cost effective alternatives.~
Even if they take your remiums? With the Bank Plan - Are You sure you are covered?