Mortgage 101 – Insurance Coverage Over the Lifespan and Listener Q&A

Dan Ahlstrand and Clinton Wilkins are joined by Mario Cloutier of Manulife as they chat about the need for life and disability insurance, especially when young, to protect against financial risks. As well, talking questions for the listeners.

Financial Literacy and Open Communication

Dan Ahlstrand
All right, welcome back. This is the Todd Veinotte show, a very special edition of Mortgage 101, the live edition of Mortgage 101, in the studio with me, of course, our mortgage guru and the host of Mortgage 101 – Clinton Wilkins. We’re also very, very happy to have you in the studio with us today, the head of creditor insurance with Manulife, Mario Cloutier, is here, and the telephone lines are open. If you all have questions, these two gentlemen are plugged into what’s going on out there. So this is a good opportunity to get it asked. 902-405-6000, that’s 902-405-6000.

Clinton Wilkins
You know what? Financial Literacy Month, I think is just so, so important Dan, and we want to keep it going all year long. I think one of the best things that we do here is break down some of these barriers. I think people need to open up their mail, know what their indebtedness is, and talk about their income. What’s going on with your assets? The asset is not just the home. What’s going on with your RRSP and your TFSA, if you’re looking to buy a home, maybe a first home savings account, these things are important. I think sometimes people ostrich and they put their head in the sand, they don’t want to talk to their spouse or their partner about what’s going on in their financial household. I hope tonight at dinner, we’ll have some of these conversations happen. I think probably even when we started doing the show six years ago, it’s taboo to talk about things like your credit and your credit score, and you know, what’s going on with your finances. But I think we’re starting to break down some of those barriers. For sure, I do have a couple more questions for Mario while we’re waiting to get some calls, so feel free to call the studio. We’d love to answer some questions. Answer some questions live on the air about mortgage lending or Manulife insurance, whatever. One of the questions that I have for Mario, and this is one question that my clients ask me, or comments that my clients ask me every day, is when we do a mortgage we offer every single consumer Manulife MVP coverage, which we offer life and we offer disability insurance. I believe in insurance, just because, obviously me having 6 to 7000 clients, I’ve seen the horror stories, and Mario hit on a really good point, it’s always better to get insurance the younger you are and you want to get insurance when you don’t need the insurance. Some of the pushback that I get is, I’m gonna go get whole life. I’m gonna go get a term policy. I have enough coverage at work and the one thing that I think to myself, I’m like, okay, intentions are great, but what happens if you walk out of my office and, we’re in downtown Halifax, and we’re in downtown Dartmouth, you can walk out of my office and get hit by a car. I was hit by a car. The way that I think about this is, I want to make sure they’re covered getting out the door, and I just know that they don’t have enough coverage. Mario, what would you say to that? I have enough coverage at work, or I’m gonna go get the coverage. I mean, that’s all fine and dandy, but, you know, it’s a hard one sometimes to talk to consumers about why they need it.

Mario Cloutier
So there’s a lot of information and a lot of statements in what you just said, I’ve got coverage at work. You got to appreciate the purpose of the coverage you got. So the coverage at work is usually based on financial underwriting. So, depending on the situation and whatever coverage you get, you get one or two times your salary.

Clinton Wilkins
Let’s just have to put somebody in the ground well.

Coverage for Different Life Stages

Mario Cloutier
It’s usually going to be available for 60 to 70% of your income, of your gross income. So let’s just assume you currently use that income for the payment of your mortgage, but also for the amenities, the services, the going to the restaurants on the Friday night. Halifax has so many great restaurants for the kid’s entertainment, for the kid’s sports and ballet lessons and everything. So what happens if today you just qualify with the mortgage because you have a great mortgage specialist, you were able to get the best solution out there available, but it was probably difficult just to make sure that you were the debt ratio with it to the maximum. So tomorrow morning, you’re facing a situation where you’re out of work for a little while, and you have to work off 70% of the income you used to have before. So, what’s your game plan to be able to recover that or you’re going to put yourself into a lot more trouble? The second thing you want to see is whether you want this money that you’re receiving from the work to be going towards paying off your mortgage, or do you want it to go off to make sure that your family maintain the same lifestyle so they don’t serve the same purpose today’s. I was reading an article about two or three weeks ago about, you know, the life cycle. Back in the day, our parents used to say 2530 years in their current career. Now, right now, I think with the new generation Z, it’s the average time on employment is going to be 6.7 years. What do you know if two years from now you change your employment? Are you going to get the same benefits? Do you want to waive the risk of making sure that you didn’t get the proper coverage when you got your mortgage in the first place, or save that $30 a month? If this is worth it, do you want to make the rest of your life decision based on the fact that you did or did not get mortgage coverage when it was time to get that? I know it sounds altruistic, but it’s a trivial question that you know the best time to do it is actually when, when you acquire this property, so you set yourself up for success in the future, people would get all life. Would get term life. You were talking about universal life. Those are all great products, and absolutely, I encourage people to get those types of products early in life, but they don’t serve the same purpose. Often people you know, confuse liabilities with assets, and there are two different stuff that you have to take care of in life. Liabilities are just as important because if your liabilities grow up in your first segment, you are talking about the debtor income in Canada, which is one of the highest of the g7 now, if you don’t take care of your liabilities the proper way, that’s going to have a significant impact on your assets. So you work just as equally hard on getting your assets through. You have to make sure you get the proper coverage. So I would recommend the best of both worlds, you’re 30 years old, and you should get both Life coverage and creditor insurance to be set up for success.

Clinton Wilkins
I’ve seen so many people in the office, and sometimes we see people whose credit is not that great, and they’ve had a major life incident. There’s been a death in the family, there’s been a disability, and the finances just go. That’s the last thing you’re thinking about, and that’s one thing you’re not as focused on. I think sometimes when we think about insurance, we’re thinking about life insurance, but the disability, I think, is as equally important, if not more important, than the life insurance. The disability is that living benefit, and there are so many people that their finances would be in better shape today if they had the proper disability. People saying, well, I have some coverage at work. Well, it’s not 100% of your coverage, you know. Just think Todd’s off right now. You know, it does happen. You’re not planning on being off work.

Dan Ahlstrand
Things happen, at a moment’s notice, right? It’s not like you can see it’s coming and you’re like, you can plan for it. You know, you go to work one day, the next day you don’t, and then can you live on 60 or 70% of your income?

Mario Cloutier
One thing that people oversee is the coverage you get for disability at work is what we call in the industry financial underwriting. So basically, what they’re going to be doing, if you’re self-employed, the only maximum disability coverage you can get from a regular policy is the average of your two years income. So, if you declared $50,000 last year, and $40,000 this year, your policy can only be for an income of $45,000 for a creditor insurance disability like Manulife, MPP is not financial underwriting, so it’s equal to the mortgage payment. If your mortgage payment is $2,000 a month, irrespective of what your income is, you’ll be covered for the $2,000 a month.

Clinton Wilkins
And that money, did that go to the consumer, correct? Or does that go directly to the financial institution?

Mario Cloutier
The disability will go to the consumer. Got a consumer to make the payment, and it’s the disability one that is tax-free. So that doesn’t go towards your income stream at the end of the year.

Clinton Wilkins
So in theory, if someone has some disability through work, and let’s say they’re getting 50, 60, 70% of their income, and they have disability coverage through Manulife empathy, essentially, they’re gonna be made whole. That’s amazing. We do have a couple of questions coming in here when we get to that.

Audience Questions and Answers

Dan Ahlstrand
We got we got one on the line. Okay, well, let’s go. Bradley has been holding and they don’t want him to wait too long. Bradley, how are you?

Bradley
Good.

Dan Ahlstrand
Your question, please.

Bradley
I’m looking at buying land in Nova Scotia, but they said it’s near a flood risk. I have to purchase the land as a whole, I wouldn’t be able to get a loan for that, would I?

Clinton Wilkins
You know what? I think that’s a tough one. We don’t do land loans in our office. Specifically. We typically will refer people to a local credit union. They’re typically one of the more aggressive lenders to do land financing. If it is in a flood zone that might be a concern. I think anytime there are any environmental issues, that can be a tough one, but I would seek advice from someone from a credit union specifically for a land loan. They’re going to be the experts, and they can let you know what’s doable and what’s not doable. Typically, from a land loan perspective, most lenders only want to lend you a maximum of 50% or maybe 65% of that land and the interest rate on a landlord is going to be higher than you can get on a traditional mortgage. But the first stop that I would make is would check the advice of a credit union, and if you need a contact, you can certainly reach out to us and we can pass that along for you.

Bradley
Okay, perfect. Thank you.

Dan Ahlstrand
Thanks, Bradley, 902-405-6000 that’s 902-405-6000 I’ve got another email. The question here, Clinton, says I’m unable to call. Hope you can ask Clinton two questions. One, is LTD considered income, and two, and I’m not familiar with the term, should I pay off my HELOC when I renew my mortgage?

Taxation of Long-Term Disability and HELOCs

Clinton Wilkins
Both are really good questions, LTD is typically income. And again, I’m not an insurance person, I’m just going to give you the overarching answer, and I can throw it to Mario as well. Long Term Disability is typically, I think, a taxable situation, depending on what the situation is. There are some insurers, like Veterans Affairs. They do have products that are specifically LTD, and they have other products that may be replacement income. Some are taxable, some are not taxable, so I think it would be dependent on that consumer-specific situation. But I think, by large, LTD is taxable. But I’ll let Mario comment.

Mario Cloutier
Yeah, that’s correct, and the good situation with that is to contact your local representative just to make sure that you assess your proper situation. There are so many regimes that are available out there that it would be hard to comment on one specific one. So the best thing is to contact your local rep about this.

Clinton Wilkins
That sounds great. And then the second question was, should I pay off my HELOC at renewal? Love this question, and we do this every single day, something that I’m super passionate about. There are so many consumers out there that have an RBC home line plan, a Manulife, and one Scotiabank staff.

Dan Ahlstrand
What’s a HELOC?

Clinton Wilkins
It’s a home equity line of credit and a very, very popular product. I think they were. They probably started in popularity around the 1990s but there’s been a reassurance or a real acceleration of people wanting to get HELOCs because there’s so much equity in consumer properties, I think it’s a great fallback plan. I don’t think it’s a forever plan, though. So when you’re coming up for renewal and if you do have a balance on your HELOC, I think it’s a great time to restructure that debt. I believe in putting any HELOC balance that’s going to be long-term debt into the mortgage because then we can amortize it at a much lower rate. Typically on a HELOC, you’re gonna be anywhere from prime, to prime plus. But if we can get that into a mortgage, you’re gonna be at prime minus. Or if we take a fixed rate, you’re gonna get a rate in those in that 4% range where a HELOC right now, you know we’re talking most of them are gonna be six plus. So I believe in combining the HELOC with the mortgage. But that doesn’t necessarily mean that we’re gonna get rid of the HELOC. Maybe we combine the mortgage and give you a new HELOC, maybe with a lower limit, or depending on what your property value is, we’re increasing a lot of global limits for consumers right now, just because, especially if you bought a house in early 2020, or before you have a lot of equity in your home. Great question.

Dan Ahlstrand
Going to stop and take another break. This is a special Mortgage 101 edition of the Todd Veinotte show for the next 15 minutes. If you have a question, 902-405-6000 is the number. We’re back in minutes.