What we don’t want is our home to become a burden to our loved ones when we leave this earth. That’s why many homeowners purchase life insurance.

The question is: who do you buy it from?

If you take out your mortgage with a bank, you will get the hard sell on buying life insurance with them. It may seem convenient, it may seem like a natural thing to do if you’re a first time buyer. But it’s not the smartest move to make for you and your loved ones.

Here are the main differences between buying life insurance from a broker/financial advisor vs the bank.

PERSONAL LIFE INSURANCE

• You control the policy
• Benefit remains the same: doesn’t decrease and is portable
• Spousal Benefit: can be paid twice = Greater Family Security
• Flexible Benefit: bank does not have to be paid upon death – money can be used for investment
• Flexible Protection: can move from house to house; continuous coverage
• Stable coverage: grace period for missed payments
• You can make changes to the plan
• This is part of your overall financial plan
• If there is a claim, your beneficiary receives a cheque
• You name your beneficiary

BANK INSURANCE

• Policy is controlled by the bank/credit union
• Decreases as mortgage reduces and eventually expires
• Retires the mortgage – only 1 benefit = Spouse loses protection
• Inflexible: bank/credit union must be paid upon death
• Protection is cancelled when house is sold or if you switch banks for a better interest rate
• Missed mortgage payments means lost coverage
• Only the bank can make changes to the plan
• This is separate from your overall financial plan
• If there is a claim, the bank starts an investigation into the cause of death
• The financial institution is your beneficiary

As you can see, the bank is looking out for itself and wants your mortgage debt paid off in case of death. Your family doesn’t benefit from the bank’s policy. And even though your coverage goes down with your mortgage, your payment doesn’t go down.

There is another loophole you should be aware of when it comes to paying out bank life insurance. If you don’t do the medical (which is not mandatory) and they find out you were sick or had an existing trait, the bank won’t pay out. When purchasing your own life insurance policy, a medical check-up is required. Always read the fine print and get the policy that benefits you and your family. Remember, the bank is looking out for its best interest – the debt you owe them.

Ian Webster's nearly two decades of recognized experience at several well-known financial organizations has given him the inside track on the upsell of products such as mortgages and mutual funds and allowed him to help clients with everything from lowering their taxes to developing profitable investment portfolios. His expertise has been featured in The Globe and Mail, Toronto Star, Toronto Sun, and Time. He has also been a featured financial speaker at many high-profile networking functions.

Find Ian online at www.financialfighter.com and on Twitter, Facebook, LinkedIn, and Instagram.