Banks and Credit Unions – Life and Disability Insurance
I continue to hear from my clients that their own bank or credit union is stating they are REQUIRED to purchase life and disability insurance in order to be approved for their mortgage. This is called tied selling.
“Tied selling is when a financial institution requires a client to transact other business with the same institution as a condition of doing business with said institution.”
With bank or credit union insurance, the underwriting is not done up front and really helps the client do nothing except incur another monthly expense. With this insurance, the client is approved right away and what happens is the client pays and pays for years on this insurance. If they then become ill with cancer or some other health issue, the bank or credit union then will not pay. Also the bank or credit union insurance is not portable, and in some cases, if the original mortgage details are changed, the borrower may have to reapply for coverage for the new mortgage even though it is with the same lender. This can also cause an increase in monthly premiums as their ages may have changed.
With Manulife Mortgage Protection Plan and any other insurance providers, the underwriting is done up front. If the clients does develop cancer or some other health issue, the policy still pays out. Mortgage Protection Plan is also portable and should the client refinance their mortgage and change lenders the client does not have to reapply and the premiums remain the same. The only time premiums would change is if the client were to top up their Manulife Mortgage Protection Plan because their new mortgage amount has increased.
There are different forms of underwriting that include the following, Post claims underwriting (medical history is reviewed at time of claim), Simplified Underwriting (some medical information is provided at time of application and a partial review determines level of coverage), and up front underwriting. (full disclosure complete with blood, urine and vitals are collected sent off and coverage is determined by lab results).
Not all lenders coverage have the same type of underwriting or types of coverage available for the borrower to apply for.
I always encourage my clients to have some form of life and disability in place to protect themselves and their families however I would discourage anyone from purchasing life or disability from any lending institution. Please chat with your mortgage professional at Dominion Lending Centres for more information.
Thank you to my DLC colleague Shirl Funk for this article.