Maintain my mortgage loan insurance?

 Maintain my mortgage loan insurance?

 

 

One reader writes: “I am 62 years old, single and run a small business on my own. My budget is limited, both business and personal. I own a condo with a mortgage balance of $ 140,000. I just renewed the mortgage, including the life and disability insurance offered by the bank. My whole family lives abroad. I wonder if it is relevant for me to maintain this assurance. "

First let's get the record straight. If there's one topic that automatically comes up when negotiating a mortgage, it's loan insurance. Can a creditor require you to take out insurance to cover the loan? Yes, it can be. But he can never oblige you to subscribe to it directly from the financing contract.

Many will choose for ease of signing the mortgage loan, sometimes under pressure (a subject that we will discuss in a future column), to retain this insurance offered by the creditor, since we will have explained to them that it is possible to cancel it. later. But ultimately, few of them will. No one gets up on Saturday mornings with the urge to shop for insurance. The financial consequence is that many pay for more expensive life and disability insurance - in fact, an increase in your borrowing rate - and of lower quality.

Upcoming rate hike

The reality is that many households are financially vulnerable and live from paycheck to paycheck. The current rise in real estate market prices, and potentially that of interest rates, increases this vulnerability as the amounts allocated to housing also increase. Thus, for many, life and disability insurance will remain relevant as long as a mortgage remains to be repaid. How much do you contribute to the family budget? How would your death or a prolonged inability to earn income impact your spouse's and / or children's ability to maintain that home and your quality of life? These are important questions to ask, considering that primary residence is an important part of their bottom line.

Thus, young owners, who have a lot of expenses, often lower incomes than their elders and sometimes young children in their care, are exposed to more risks. In addition, people in their 50s or near retirement should also be securing their assets. Of course, they have less expenses and have accumulated a lot of savings. However, by being on the eve of retirement, they are more at risk of becoming disabled or being diagnosed with a serious illness.

Take the case, for example, of a 54-year-old who would have to cash out only $ 25,000 from his RRSP to focus on his recovery. This withdrawal actually costs a lot more. Considering the taxes paid at disbursement and the waiver of tax-sheltered compound interest on that amount, it is instead a loss of $ 70,000 in the value of the RRSP account after 15 years. If, with life insurance, you protect your loved ones, disability insurance is the one from which you will benefit directly in the event of accident or illness.

The case of our reader

In our reader's case, the suitability of life insurance will depend on his estate wishes. Since he does not have a spouse and dependent child, life insurance could be used to facilitate succession. It makes the liquidity required by the liquidator easily accessible to repay the loan and then take the time to settle the estate without hassle. Unlike the insurance taken out through the loan directly, it is he who will choose his beneficiary, whereas currently it is the creditor who will only reimburse the balance of the loan at the time of death.

In this situation, disability insurance is without hesitation the key element: 3% of mortgage foreclosures occur following death, while 48% are explained by disability. If he has few assets and generates little income, it is likely that the inability to generate income over a short to extended period would have a major impact on him. He must ask himself what the impacts would be if he did not
generated more income for an extended period, both on its ability to maintain its residence, a
important asset for his retirement, than, in this case, his ability to make his business profitable.

Validate the analysis of your needs

Our reader, in light of the points raised above, will need to validate the analysis of his life and disability insurance needs. With regard to disability insurance, the amount of protection required in this case may well exceed that of the monthly mortgage payment. Subscription to individual protection would be