You just bought a house and the bank approved your mortgage. The bank is now trying to sell you its own mortgage insurance. You’re excited about your new home and want to protect your family in case something happens to you, so you buy insurance thinking you’ve got a good deal. not necessarily. Bank mortgage insurance, more commonly referred to as creditors insurance, is loaded with fine print that homeowners have never read, but if they did and compared it to other insurance plans, they would discover that there was a huge difference and that they wasted a lot of their hard-earned money. . Most people are simply too busy to review their coverage and likely never read what they bought. After reviewing and researching your bank creditor insurance contract, here are the top seven reasons you should avoid a bank creditor insurance product.
Reason #1 – Your insurance goes down each year but the cost stays the same. The amount of insurance protection available through a mortgage lender is limited to the outstanding mortgage balance. Your insurance protection decreases with each mortgage payment, but the cost will remain the same.
Reason #2 – The bank is the beneficiary of your policy, not your loved ones. In other words, you cannot choose your own beneficiary of the insurance proceeds. Since the bank lends you money against your home, they automatically become the beneficiary of all proceeds under the creditors insurance group contract. Unlike personal term insurance, your family cannot use the proceeds of the death insurance to cover needs other than a mortgage.
Reason #3 – Your insurance rates are not fully guaranteed in the contract. Your bank can change your rates at any time. With creditors insurance, your premiums are paid on a group basis which means your rates can be increased at any time if that group’s experience becomes unfavorable. Simply put, if the bank isn’t making enough money on the product, it will increase your rates.
Reason #4 – Non-smokers pay smokers’ rates. Most mortgage insurances available through a bank only take into account your age to determine the cost of the insurance. There is no preferred price for the best health risks. If you are healthy and do not smoke, be prepared to pay the same insurance rates as someone with poor health who smokes.
Reason #5 – If you switch banks at a better rate, you lose your insurance policy. Mortgage insurance contracts do not allow transfer, which means you cannot take the insurance policy with you if you change mortgage lenders. You will need to reapply and qualify for new coverage with the cost based on your new age. Not only will you pay more for your insurance coverage because of your increased age, but if your health changes, you may not even qualify for the coverage you and your family need, leaving your loved ones in a vulnerable position. All the insurance money you paid to the bank is gone forever without a return.
Reason #6 – Bad Advice – Most bank employees are not licensed insurance advisors. Most, if not all, service representatives at banks are not licensed insurance advisors and therefore cannot provide expert advice regarding your family’s insurance needs.
Reason #7 – Your bank can cancel your insurance policy at any time! correct. Most, if not all, creditors insurance is a one-way contract. Since the bank owns and holds the contract with the insurance company, they control every aspect of the plan. If at any time and for any reason the Bank decides to remove this product from the shelf, they have every right to do so. Your insurance protection is lost and the money you spent is lost and can never be recovered. Of course the bank representative can tell you that they don’t think this will ever happen. But the contracts I’ve read are quite clear that this option is for the bank and there’s nothing you can do about it.