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Mortgage loan insurance — yea or nay?

02 June 2017 by National Bank
assurance prêt hypothécaire

Because there’s a lot riding on your home, it’s never too late (or too early) to discover the many benefits of mortgage loan insurance, a protection that can save you many worries in the event of disability, serious illness or death.

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Official Quebec statistics (ISQ, 2016) show that nine out of ten Quebec homeowners take out a mortgage to purchase their principal residence. After a down payment averaging 29% of the total price, new homeowners move into their new digs carrying an average mortgage load of about $130,000. The burden can be quite a bit higher though in major urban areas. How high? Well, the March 2017 records from the Canadian Mortgage and Housing Corporation list an average of $368,000 for a single family house in the Greater Montreal Area, or $288,000 for a condo.

The province’s booming real estate market and years of rock-bottom interest rates have led to record levels of total mortgage debt, according to ISQ. And although one out of two households pays off its mortgage in 15 to 20 years, nearly one in six draws it out to 30. ISQ also notes that close to one 65-year-old homeowner in four still has a mortgage to carry.

It just goes to show that your mortgage can stick with you for a good chunk of your life. That’s why it’s so important to cover that liability with loan insurance, just as you’d naturally protect your and your loved-ones’ standard of living with life insurance, or the value of your assets (belongings, car, boat, or whatever) with property insurance.

Beyond life insurance, protecting the living

Who knows what could happen to you or your loved ones in the course of the next two or three decades? Accidents, diseases, death… no one’s immune to bad luck or adversity. But in the unthinkable event of a death, loan insurance pays the remaining insured amount of your mortgage directly to your financial institution, instead of paying the money to your estate. That prevents delays and guarantees that the payout goes to spare your loved ones another burden, while securing them a substantial inheritance in the form of your fully paid-up property.

Then again, your chances of disability or serious illness before age 65 are nine times that of dying. Think of backaches or car accidents. What’s more, the Canadian Cancer Society’s 2016 statistics show that 17% of all cancers occur in people age 50 to 59, while nearly 20% of breast cancers are diagnosed in women under 50.

Bear in mind that, according to the Canadian Life and Health Insurance Association (CLHIA), most workplace group insurance plans only pay between 60% and 85% of your regular wages during the time you’re unable to work. That means that loan disability insurance can help you maintain your standard of living by taking care of the insured share of your mortgage payments. This cuts down on your expenses and frees up liquidity to cover hospitalization fees, care, medication, or travel arising from your medical condition. Another benefit of loan insurance—you’re free to change your job without losing your coverage.

Protect your savings

What happens if you have to stop working for a while? Without financial protection, you might have to burn through your savings and tap into your RRSP if you want to maintain your standard of living. That’s why the best time to get disability insurance is when you’re healthy. Waiting till you’re unable to work is like waiting for a fire to break out before getting property insurance.

It’s the same for serious illness. Everyone knows someone who’s had a heart attack, stroke, or cancer. More claims are paid out for these diseases than any other in Canada. As life expectancy goes up, so do the chances of contracting one of these conditions. Consider that while two out of five Canadians will get cancer in their lifetimes, 60% of those who do will survive for at least five more years. For those who have a stroke, the figure is 75%.

When you’re fighting illness, what counts is to be able to focus on what really matters—getting better. Having your loan covered frees you from a big responsibility if you’re diagnosed with serious illness. Your insurance company pays the covered amount of your mortgage directly to your financial institution, so you don’t have to worry about it.

The verdict? Well, becoming a homeowner can be exciting, but when considering the rising real estate prices and ever-increasing weight of mortgages added to the liability side of Quebecers’ portfolios, it’s hard to escape the conclusion that protecting your principal asset with mortgage loan insurance is essentially a slam dunk.

For more on mortgage loan insurance

 

Sources:

Institut de la statistique du Québec, Canadian Mortgage and Housing Corporation, Canadian Cancer Society’s Canadian Cancer Statistics, the Heart and Stroke Foundation of Canada, National Bank Insurance.

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