If you think of your mortgage as a ball and chain, just imagine the burden it would be if you died. There are your loved ones, stuck with this monster debt to a financial institution that’s as likely to cut them some slack as a piranha is to pass up on a sirloin steak. It’s in this frame of mind that many people make the error of replying with a quick yes when asked by a lender if they’d like to have life insurance on their mortgage. These days, no one arranges a mortgage without being hit on about mortgage insurance. IN many cases, a banker will integrate the premiums into your total mortgage payments. Let’s see... $100,000 at seven per cent for one year means a payment of $700 per month, plus mortgage insurance bring your total payment to $725. To compound the problem, you may find you have to sign a document should you choose to refuse mortgage insurance. It’s as if buying this insurance is the natural way of things and you need to sign off on the alternative because it’s such a foolish thing to do.

Do not misunderstand here - having enough insurance to cover your mortgage debt is essential and, if you’re just not going to bother checking out alternatives, then by all means say yes to the bank’s offer of insurance. But if you want to buy the most effective coverage possible, tell the bank no thanks and then call up an insurance broker for a quote on a plain old term life policy. There are several benefits to term insurance, the most notable being FLEXIBILITY. When you sign up for bank offered mortgage insurance, the beneficiary is the bank. You die, the bank gets paid and the survivors keep the house without a mortgage. With a term life policy, you can make anyone the beneficiary, just as importantly, that beneficiary can do whatever he or she wants with the money paid out by the policy. Say you die at a time when you have a mortgage attractively low interest rate.

Your family may not want to pay it off; perhaps they’d rather invest the insurance money, or use it to pay monthly expenses or start a business or take special job training, or whatever. With a term policy, this latitude exists. With a bank offered policy, forget about it. Your term coverage also stays with you regardless of what you do with your mortgage. If you renegotiate your mortgage or blow off one bank for another, your mortgage insurance ends and you’ll have to arrange new coverage. If you’re few years older or in poorer health, your premiums could jump. If you had a 10 or 20 year term policy, on the other hand, you have the freedom to manage your mortgage however you want without implications on your insurance coverage. Your term policy premiums will rise if and when you have to renew, but generally you’ll know to advance what your future premiums would be. As well, you have the option of lowering the amount of term coverage you buy at renewal time to reflect your lower mortgage balance. The toughest comparison to make between bank sold mortgage insurance and term coverage is cost. Truth is, there are instances when either may be the cheapest.