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Term Insurance for Mortgage and Loan Coverage: An Opportunity to Make it Your Own

First, a few statistics from the Canadian Real Estate Association (CREA):

By the end of 2020, annual real estate sales were on track for an all-time record of 544,413 units, with the national average prices gaining more than 13%.

Looking ahead to 2021, CREA expects conditions to look largely the same, with a price gain of 9.1% driven largely by supply shortages, especially in Ontario and Quebec.

One of the factors that could drive Canadians to move in 2021 is the reality of working from home. This has made it more realistic for many to trade expensive urban properties for more affordable alternatives.

One seasoned Toronto-area realtor recently told Global News that the seven municipalities that saw the largest growth during the pandemic were on average 86 kms away from the city center.

Don’t get locked into mortgage coverage!

When it comes to signing their mortgage paperwork, many Canadians will simply check the “yes” box and accept the default life and disability insurance offered by their bank or mortgage lender.

But this type of insurance could severely limit your options compared to buying term insurance directly.

Let’s explore this topic by looking at two clients: The first is Julie, a healthy 35-year old looking to purchase her first condo downtown. She financed a $440,000 mortgage loan with a 25-year amortization period at a five-year fixed rate of 2.42%. The second is Carl, a healthy 50-year old who has sold his place in the city so he can move to larger property about an hour away. He financed a $300,000 mortgage with a 25-year amortization period at a five-year variable rate of 2.10%. Here’s how the premiums compare between a SSQ Insurance Term Plus life insurance policy, with a total disability rider, versus the built-in mortgage insurance offered by two of the largest banks.

*Includes a monthly benefit that covers mortgage payments for up to two years As you can see, at 25-year term - the costs look similar. However, say Julie is on a tight budget and would prefer a lower monthly premium. No problem! She can simply choose a 10- or 20-year term and save a significant amount every month. Let’s suppose Carl plans to take advantage of prepayment privileges and pay off his mortgage in just 20 years. He could choose the 20-year term and save money each month too. Should their situations change at any point in the first five years, both would reserve the right to extend their term without new underwriting, and at preferred “attained age” pricing.

There’s another way to save with Term Plus Life coverage – the bank premium stays level throughout the entire term of the mortgage, but with their own individual term policies in place, Julie and Carl have the option of reducing their face amount as their mortgages are paid down, which will decrease their premiums.

One more important point: some bank insurance products only cover the mortgage balance, but what if Julie also has a line of credit, or if Carl has children that he wishes to protect? When clients like this choose to work with you, they benefit from a full insurance needs analysis and get the proper amount of coverage to cover all their financial risks.

In summary, Term Plus Life Insurance and bank insurance are very close in cost over a 25-year term, but Term Plus allows for a more comprehensive coverage solution.

It also gives the insured the flexibility to save money now by opting for a shorter term, and saving money later by tapering down the coverage amount as the mortgage is paid.

In terms of convenience, Term Plus Life insurance can be surprisingly quick, especially in selected cases where we can use predictive analytics to issue a policy in as little as a few days. That gives your client plenty of time before the closing date.

For clients who absolutely can’t wait, and who do not require disability insurance, Simplified Life Insurance is even faster. It is often possible to go from online application to policy issue in under 60 minutes.

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