Brokers criticize mortgage life insurance

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Several broker joined the fracas to discuss their own issues with bank-offered mortgage life insurance, with many criticizing the high mark-ups and low payouts.

“The markup on bank-issued MLI is 2,500 per cent to 4,000 per cent,” Lior Hershkovitz of Mortgage Edge wrote on MortgageBrokerNews.ca. “Mortgage life insurance is a cash-cow for financial institutions because the payout rate is ridiculously low.”

For some, the fact that banks don’t spend enough time explaining the details of how the insurance works is the biggest issue.

“Not saying insurance is a bad thing but clients are never properly informed. Insurance companies are very good at explaining what is covered, but hide the details on what is not covered,” Brad Currie of Verico Versa Mortgages wrote. “They always stack the deck in their favour.”

Talk soon turned to personal anecdotes, when one broker mentioned a client of his who may have been taken advantage of the bank because English wasn’t his first language.

“This Italian Immigrant struggled a little with the English language so he checked one question yes then scribbled it out and checked no,” Russ Robideau commented. “The bank's insurer ruled that since he had effectively answered yes and no the claim was denied. These insurance questions seem not to be well explained by bank mortgage staff and I'm not sure why.”

For his part, Hershkovitz believes the lack of oversight encourages lenders to hock this type of insurance so willingly.

“The lenders continue to collect the premium from the borrower fully knowing that in the vast majority of cases the claim will be rejected,” Hershkovitz wrote. “This type of insurance is not regulated and this is why it is pushed aggressively.”

Related:

Bank denies mortgage life insurance claim

  • Frank on 2014-07-14 11:39:36 AM

    The banks like all insurance companies have an obligation to payout on a claim and the banks do pay out millions per year. In saying that, like all insurance companies I believe they do look for those loopholes to see where a payout could be refused. Is that not common practice in insurance? I don't want to speak out of turn.
    The banks also heavily mandate their branches and mortgage reps to sell insurance with a minimum of around a 32% acceptance rate or they can lose their bonus, company ranking, be put on bad lists, even their jobs, etc.. I disagree with that. Yes, the banks make a lot of money on their insurance products and most of those selling it are not knowledgeable enough to do so, likely due to not taking the time to properly learn the products and explain fully to their clients.

  • Vejai Etwaroo on 2014-07-14 12:06:42 PM

    In my opinion, the bank should do banking business and leave all the insurance business to the insurance companies. I am an Insurance broker and I advise my clients to buy term insurance to cover their mortgage loan instead of the Bank Mortgage insurance which only cover for the period of the Mortgage loan, example 5 years, upon renewa,l the premiums increase based on the attained age and health. If they go to another institution for their mortgage they have to requalify and pay premiums at the attained age. With the Term Insurance I offer to my clients I give them a long term of 5 years to 25 years depending on what they can afford. These term insurance are guaranteed renewable without health requalifications; and is based on the age attained for premiums which is guaranteed from the beginning and not when it is ready to be renewed. 99.9% of the Mortgage Insurance cases I do, I sell universal life insurance that gives the clients a Life Insurance coverage for Life and include a living benefit along with investments. I do a cost analysis for each of my clients showing them the benefits of the Universal Life insurance versus the Term Life versus the Bank Mortgage Insurance. With the Insurance I offer, they can renew thier mortgage with any financial institution and not worry about requalifying again even if they have health problems. Insurance bought through me from the Life Insurance companies are in 99.9% of the cases subject to a meidcal report especially for mortgage purpose die to the amount. It is fully underwritten by the insurance company when applied for and not when a claim is made. What this meas is that their claim cannot be denied when it is made because it was fully underwritten when applied for.

  • Vejai Etwaroo on 2014-07-14 12:06:47 PM

    In my opinion, the bank should do banking business and leave all the insurance business to the insurance companies. I am an Insurance broker and I advise my clients to buy term insurance to cover their mortgage loan instead of the Bank Mortgage insurance which only cover for the period of the Mortgage loan, example 5 years, upon renewa,l the premiums increase based on the attained age and health. If they go to another institution for their mortgage they have to requalify and pay premiums at the attained age. With the Term Insurance I offer to my clients I give them a long term of 5 years to 25 years depending on what they can afford. These term insurance are guaranteed renewable without health requalifications; and is based on the age attained for premiums which is guaranteed from the beginning and not when it is ready to be renewed. 99.9% of the Mortgage Insurance cases I do, I sell universal life insurance that gives the clients a Life Insurance coverage for Life and include a living benefit along with investments. I do a cost analysis for each of my clients showing them the benefits of the Universal Life insurance versus the Term Life versus the Bank Mortgage Insurance. With the Insurance I offer, they can renew thier mortgage with any financial institution and not worry about requalifying again even if they have health problems. Insurance bought through me from the Life Insurance companies are in 99.9% of the cases subject to a meidcal report especially for mortgage purpose die to the amount. It is fully underwritten by the insurance company when applied for and not when a claim is made. What this meas is that their claim cannot be denied when it is made because it was fully underwritten when applied for.

  • Vejai Etwaroo on 2014-07-14 12:09:16 PM

    Sorry about some of the spelling. Just typo.

  • Elena Lombardo on 2014-07-14 1:17:04 PM

    At the end of the day, any and all insurance companies will do their due diligence when dealing with a claim, whether it's a group product (like mortgage insurance) or an individual insurance policy.
    It's up to clients to understand and truthfully respond to all questions.
    Reputational risk is at stake for the insurer. Each claim is carefully considered from a dozen different angles before being declined for fear that one claim will explode and create a media frenzy (like this one).
    BTW, it happens in the individual insurance world as well!
    Mortgage Insurance is still the right product for individuals that either don't have any other coverage, or wish to protect their mortgage separately from their personal (read: Long Term) insurance needs.
    Educating our clients on the features and benefits of the product is the most important part... As a broker you are helping your clients get a mortgage - help them (and their families) keep their home in the event of an unfortunate incident!

  • Ron Butler on 2014-07-14 1:32:48 PM

    So if we are going to be "educating our clients on the features and benefits of the product" shouldn't we be registered, licensed Life Insurance agents. Let's face facts here: if we heard that a life insurance agent was giving in depth information on mortgages and making recommendations about what mortgage to take we, as mortgage brokers would be appalled. Please let's do the right thing by the consumer: get quality, low cost life insurance protection from the right person: a licensed life insurance agent.

  • Paul Therien - CENTUM on 2014-07-14 4:40:56 PM

    think that it is important to understand that this is a risk with all life insurance policies. The story that reported the denial of the claim did not provide all of the pertinent facts, nor should we expect it too. In this particular case I think it is premature to comment without knowing the full scope of the situation. I am not suggesting that there is no error on the part of the insurer (The Bank) but that is the nature of almost all life insurance companies in Canada.

    We do not know if this was in fact a pre-existing condition, or if it was one that resulted from a high risk lifestyle (smoking). I myself am a smoker (shame on me) and I know that this means that in the event I contract lung cancer… my insurance will not pay out full premium, if any at all. But I cannot blame the life insurance company for that… it is after all my lifestyle choice that is the cause, and so I take accountability for that choice I have made. I could purchase a policy that will alleviate some of that risk, but my premium is significantly higher and I choose not to do so.

    Many insurance companies actually pay out more claims than they deny, I do not know if the banks are classed in that segment, but from my time at CIBC I do know that they do pay out claims – granted not all of them by any stretch. I have no idea what the ratio is to denials and payments.

    In the situation that resulted in this and the other story, perhaps the bank could have done things differently, like explain the policy more clearly. The question also has to be however… did the borrower ask the right questions or reveal all of the pertinent information up front? We don’t know, and unless we do – we cannot pass judgment. We do, as brokers, have an obligation to explain as best we can the risks etc. when purchasing life insurance. One of those risks is to explain to them that there may be cases where the insurer may not pay. We should also educate ourselves on the insurance we recommend to our clients and make sure that we are comfortable with the product we recommend. I did my research and as a result CENTUM went with the company that pays out the greatest number of claims.

    It is incredibly sad that the widow has to deal with this issue, and in truth a shame. This is a difficult enough time for the family, to also have to deal with this only adds to the challenge. Hopefully the lender will have a solution to assist this family keep their home and manage the payments more effectively.

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