Are you making mortgage insurance payments? When I heard about the TV segment of CBC Marketplace called “In Denial,” I could not believe that the Canadian regulatory bodies (that supposedly protect consumers) could allow this to happen. Is this really happening?When I met with Chris Nelmes of Nelmes Financial Planning and Insurance Services, I asked just that. “I have always heard stories about the trouble with mortgage insurance” was his response. It’s not all mortgage insurance though, “The problem is insuring your mortgage through the lender.” The web page for CBC Marketplace’s investigation, “In Denial,” lists the key differences between post-claim and private insurance. Most lenders only offer post-claim insurance. Post-claim underwriting means that you answer the insurer’s medical questions when you apply and the insurer only checks your answers and medical history if you make an insurance claim. It’s only at the time of the claim that the insurer determines whether you are eligible for the insurance protection. With private insurance, the insurer qualifies you initially and you know you are protected before you start making your monthly insurance payments. When Chris first heard of these stories from his peers, “they often seemed like scare tactics and hard to believe,” he said. And now, “After being in the business for a while I have seen the damage this type of insurance can do and why it is important to ensure the right steps have been taken before it is too late.”
Chris had some personal experience to share related to his own client base. “My first introduction to a mortgage insurance claim wasn’t that bad,” he explained. “The spouse passes away and after fighting with the insurance company for six months the insurance company paid out.” You mean that you have to fight for your payout? I was about to ask, but Chris was already onto his next experience.
“The next time it wasn’t so simple. A single mother had a home with disability insurance on the mortgage. She got cancer, missed work, needed treatment which led to a stroke, a car accident, and a few other injuries.” Surely she would be protected by her insurance. Not so! Chris continued: “The mortgage insurance company merely gave this client back the disability premiums she had purchased, and the client was forced to sell her home.” So what happened? “She did fight the cancer, with no assets left and a tiny rental to raise her daughter.” Can you believe that this could be happening today in Canada? Where is the outcry?
Chris’ experiences are in line with the “In Denial” report. But it doesn’t always have to work out this way. Chris continued, “The most recent client story was a client who went to a private insurance company and got a life insurance policy to cover the mortgage. This client was later diagnosed with cancer and given six months to live. Five years later he is still fighting, and every year his policy allows him to take $100,000 advance on the death benefit. This has allowed him to travel, enabled his spouse to take time off work to spend with him, and even provided the funds to make the mortgage payment.” Now that’s real protection.
Chris further explained that “the difference between the first two stories and the third is simply that the third was done through a private insurance company, not through the lender; and it was underwritten at the time of application, not at the time of the claim.” He confirmed that in the US, “some states have banned underwriting at the time of the claim, but in Canada it is still common when tied to a debt.” Chris noted that “not all companies do this, not all products are the same.” The important question to ask when choosing insurance is, after you’ve started making monthly insurance payments, are your policy payouts guaranteed if you run into health problems? Making premium payments does not mean that your protection is guaranteed.
I remember being asked to sign-up for mortgage insurance when we were signing our mortgage documents. It just seemed like a convenient ands easy choice to take their insurance since we were already there signing papers anyway. Yet Chris states that the seemingly convenient option is not the best. “I often see private insurance chosen because often it costs less,” says Chris, “and it is free of the debt and gives you more control.” He stated “in the third example, if the insurance was tied to the home, it is likely they would have had to sell the home, forfeiting the coverage when it would be needed most.” Most people need protection beyond just the mortgage payments in order to keep their home if disaster strikes.
Chris’ stories and CBC’s report do not merely show what might happen to just one in 10 million people. Many people are affected; they just may not know it yet. Chris summarizes, “When I first started with insurance, I always heard these stories but thought they would never affect me. The three stories I’ve shared all happened to people I know and see on a regular basis. I also hear these stories from other professionals and I watched CBC’s investigation highlighting other Canadians who have fallen victim to post-claim underwriting as well. Knowledge in action is power. Be proactive and make sure the insurance you depend on will pay out and protect you.”
Chris can be contacted through Nelmes Financial Planning and Insurance Services, 604-637-7422. Email: chris at nelmes.ca.
This entry was posted on Wednesday, January 20th, 2010 at 7:34 pm and is filed under Financial. You can follow any responses to this entry through the RSS 2.0 feed.
