Do you Rent or OWN your Mortgage Life Insurance?
Buying a home and getting a mortgage can be an overwhelming process. With insurance planning being left to the end, many people do not take the time to get a comprehensive life insurance plan in place and end up paying more than they should for basic mortgage insurance or even worse, they opt out of mortgage insurance all together (this is bad!).
If you are paying for mortgage insurance through MPP or an insurance plan from your lender, you do not have the best plan in place and you need to get in touch with a licensed Insurance Advisor to review your situation and put together a comprehensive insurance plan that suits your needs and protects your family and loved ones.
Once you move from a mortgage insurance product like MPP to a personally owned life insurance plan, you will learn that there are two options when it comes to life insurance; Term Insurance and Permanent Insurance.
Term Insurance VS Permanent Insurance
Term insurance makes the most sense to cover a high need for specific period of time, like a mortgage. When you have a mortgage, you need a significant amount of life insurance in place, generally for at least 10-20 years, while your mortgage debt is being paid off. Many people with a large mortgage also have a young family with a spouse and children that depend on their income which is why a comprehensive life insurance plan is needed.
Term insurance is comparable to renting.
When you have a term life insurance policy, you have insurance coverage in place while you need it but once the coverage period (term) ends, you walk away from the policy and you have no equity or anything to show for the money you have paid into the policy.
Permanent insurance is best for long-term planning. Eventually life ends for all of us and there are expenses and taxes that will be owed. Life insurance is needed to help pay for these final expenses, especially if you will have significant assets in your estate that will trigger a large bill to CRA to cover taxes owed from Capital Gains.
Permanent insurance is comparable to owning.
Permanent life insurance coverage is guaranteed for life and the premium you pay is also guaranteed for the payment period of the policy, typically for 20 years. After that 20 years, the policy is fully paid up and there are no more premiums to be paid. Hence, you own the policy and you have an asset that has built up equity.
Rates for term insurance start off low and gradually increase over time until they become essentially cost prohibitive in your 60/70s. With Permanent insurance, the rates start off higher, but they do not change and after a certain period of time the payment ends and you own the policy for life. If you can make it work in your budget, we generally recommend a combination of both Term insurance and Permanent Insurance to cover your short term and long term needs.
By combining the two types of insurance, you get the most bang for your buck and you have the insurance protection you need to cover your mortgage, your income, and all of your other daily living expenses while your are young and your expenses are high. After 20 years, the term insurance falls off and you are left with your permanent life insurance policy that is paid up for life, continues to grow, and is guaranteed to pay out.
If you would like to review your situation, please contact me firstname.lastname@example.org.
Three Sixty Financial Group
Desirée Dupuis, Partner
#202-2227 St John’s Street, Port Moody
Director, Ruben’s Shoes