The perils of creditor insurance


PiggybankOften, when I receive mortgage instructions, they contain a form for the clients to sign regarding creditor life and/or disability insurance. Creditor insurance is one of my least favourite things.

There are many problems with creditor insurance. First, it is underwritten at the time of the claim, rather than at the time of the application. This means that you could pay premiums for years, and then have your claim denied because of a health condition you didn’t disclose at the time of the application. This creates a false sense of security in a policy that may never pay out. The coverage declines as you pay down your mortgage, but your premiums don’t change; it only repays your mortgage, when often you would be better served by a lump sum payment; and every time you move or refinance, you have to qualify for insurance all over again.

I am a big fan of insurance. I have many different types for myself. However, I think that you are always better off with an independent insurance policy that you own yourself, can take with you, and will properly cover you if something happens.