When my husband and I bought our house in March, we knew that we would have to get more life insurance to cover our huge new mortgage.
We want to be sure that if something happens to either of us, the surviving spouse and our children would be able to stay in the home. We expected it would take a month or two to apply and get approved. We used mortgage insurance to bridge the gap.
Mortgage insurance covers only the value of your mortgage. It’s convenient because it’s typically offered on the spot when you take out a new mortgage. You answer a few health questions. The premiums can be deducted automatically from your account when you make your mortgage payments.
The downside is that you will pay the same premium even as your mortgage balance declines in value. Any payout from the policy will automatically be used to wipe out the mortgage.
By contrast, life insurance coverage does not change over time. My family can decide whether to use the money to pay down the mortgage, or for another purpose.
We signed up with Mortgage Protection Plan as soon as we got our mortgage. Our mortgage broker explained that the coverage took effect immediately after we answered a few health questions.
The questionnaire asked whether we have ever been diagnosed with a variety of ailments including heart disorders, chest pains, stroke, cancer, diabetes, or AIDS. It also asks whether we smoke, or are currently disabled. It also notes that the coverage excludes death caused by “high-risk activities” such as sky-diving, scuba driving, or being physically exposed to a war zone.
A few weeks later, a nurse came to our home to take blood and urine samples and we filled out a detailed health questionnaire. Then there were more questions to answer over the phone.
The mortgage insurance cost $120 per month for my husband and $60 per month for me.
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At the same time, we started the process of getting new life insurance policies. An insurance broker helped us with the applications. It was a very similar process with the same detailed health questions and blood and urine samples.
The cost for my husband is $130 per month and my cost is $62 per month for 20-year term life insurance through Canada Life. We are now applying for disability insurance, too.
After the life insurance was in place, we cancelled the mortgage insurance policy. It was easy to cancel over the phone and we got a refund on the premiums we had paid.
It was unlikely that something could have happened to either of us in the eight weeks it took to get our life insurance in place, but we didn’t want to take that chance.