In this episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on…
In this episode of Mortgage 101 with Clinton Wilkins and Todd Veinotte, as heard on News 95.7, the guys talk about, how many Canadians are underinsured, and how some insurance is better than no insurance, and the difference between creditor and underwritten insurance.
Mortgage 101 with Clinton Wilkins & Todd Veinotte – September 2021 – Part 1
Don’t feel like watching the video? Check out the transcript below.
Creditor and underwritten insurance
Todd Veinotte: [00:00:00:05] Alright, I want to drill down more into insurance, we talked about this and I think it’s extremely important because people need to understand, though, that there’s a difference between fully underwritten insurance and insurance that you provide.
Clinton Wilkins: [00:00:13:23] Like creditor insurance.
Todd Veinotte: [00:00:14:19] Right. Right, not to disparage credit or insurance, but do you want to explain to people what the difference is when it comes to fully underwritten insurance that you would get through a licensed insurance provider?
Clinton Wilkins: [00:00:24:01] Which I am not.
Todd Veinotte: [00:00:25:04] Which you’re not, right.
Clinton Wilkins: [00:00:27:00] A fully underwritten insurance is something that you would have like a term policy or a whole life policy or a universal life policy, and all of those types of policies are underwritten up front. That means that there could be a full medical. Maybe there’s a credit check, maybe it’s financial records. They can really dig into a lot of things, as well as do an interview with the insured.
So it’s basically insurance to make sure the insurance company is willing to take a risk on you as an individual. They may need a urine test and quite likely blood, the whole paramedical. That insurance is usually for a finite amount of time, and typically that insurance would pay your state or pay your beneficiary.
The difference with creditor insurance, they underwrite it basically at the time of claim. So you answer some pre-qualification questions and then the insurance company is going to decide if they’re going to give you insurance or not. And hopefully you answer those insurance questions correctly. But all the underwriting is done at the time of claim.
So, you know, if it was an accident, that’s pretty easy. But if you died of maybe natural causes, then, you know, the doctor would have to fill out some forms, and then the underwriting would happen after the time of claim.
Some insurance is better than no insurance
And the way the credit insurance works, it’s a declining balance insurance. So if you do have a loss of life, it pays off basically how much you owe at that time. You know, if your mortgage started out being $400,000 at the time of claim, it’s $300,000, $300,000 would get paid out and the proceeds of the payout goes to the mortgage lender. It doesn’t go to the estate, right? So that’s really the difference.
Todd Veinotte: [00:02:08:23] But if the estate obviously will be the beneficiary of the assets?
Clinton Wilkins: [00:02:13:07] Yeah, exactly. So and normally with creditor insurance, they’re really good about it. And I think sometimes creditor insurance gets a bit of a bad rap. But, you know, from the insurers that we deal with, primarily Manulife, obviously, that’s one of the biggest insurance companies in the country. And John Hancock is huge. They have a very good claim, history. Creditor insurance is not for everyone, Todd. I’m not an insurance person, I don’t claim to be. But I know a little bit of the nuts and bolts. Some insurance is better than not having any insurance at all, that I do know.
Many Canadians are underinsured
Todd Veinotte: [00:02:46:28] Yeah, but if it’s not going to pay, then what’s the point, right?
Clinton Wilkins: [00:02:49:13] It does pay.
Todd Veinotte: [00:02:50:07] No, but there are times when pre-existing conditions come into play.
Clinton Wilkins: [00:02:53:13] Of course, and you know what? I think that getting a whole life or a term policy, is in many cases, the better way to go. Although I’m not an insurance person. But I do think a lot of people have very good intentions about getting a whole life or a term policy. And those good intentions don’t necessarily turn into action. A lot happens around, you know, the time that you’re buying a home and you know, there’s a lot of moving parts, as you know, and the mortgage lending is obviously a big piece of it. It’s not everything. It’s certainly a big piece. And I think credit insurance is really still very important. Many Canadians are underinsured, but I like to use creditor insurance myself as kind of a stopgap. It’s basically a bridge to then go get some financial advice from, you know, a licensed insurance person and then make the right decision.
Todd Veinotte: [00:03:53:12] Can you cancel it or is it all? Is it a time of purchase?
Clinton Wilkins: [00:03:56:04] No, there’s no penalty to cancel. One of the big reasons borrowers want creditor insurance, even if they’re going to go get a whole life return policy is accidental. Accidents happen, and usually young people are not dying from a freak heart attack. Like, let’s be honest. But young people do die of car accidents, right? Yeah, they probably also die of pandemics, although we’ve been pretty lucky here.
It’s certainly been a scare for a lot of people, and I think many of our listeners should really consider their insurance asset coverage. I kind of throw it the number of eight times the income is how much insurance you should have. That’s to replace your income. You also need to consider your debt. And I think any borrower that tells me to be like, “Oh, I have insurance at work,” that’s a cop-out.
Insurance at work, I’m going to throw it out there: It’s a joke. Oftentimes, it’s one times your annual income, and sometimes you can buy more coverage, so don’t get me wrong, Todd, I’m not saying it’s absolute garbage, but what I’m saying is people think they have enough coverage. And I would say nine times out of 10 Canadians are underinsured.
Talk to a licensed insurance provider. Get the advice. But it’s a very long process, as I’m sure you’re aware, it takes a lot of time to get that underwriting done, and that’s why we have conversations with every client about creditor insurance, even if it’s a temporary coverage until you get a longer term policy in place. It’s a good place to start.
“If it’s grey, say yes.”
Todd Veinotte: [00:05:44:04] It’s important, though, for the people to be honest, right?
Clinton Wilkins: [00:05:49:12] If may be a yes, it’s always a yes. Or if you don’t know the answer to the question, it’s a yes,
Todd Veinotte: [00:05:55:15] Just because you have that policy, because you think, oh I slipped that one in there. If it’s not going to pay, then it’s pointless.
Clinton Wilkins: [00:06:01:26] We always say, if it’s gray, say yes. Then the actual professionals will call you and find out what’s going on and then they’ll make the assessment and then it will go to underwriting. It’s always better to say yes, and that’s what we believe. I get paid on the insurance, but it’s pennies compared to mortgage lending. Mortgage lending is our core business. But I believe insurance is important.
Accidents can happen
And I’m going to tell you a story. In 2021, I had a client die very young in an accident. His widow emailed me on a Sunday night, I remember I was sitting at my condo and I got an email from her. I talked to them, you know, a few months prior. They were, you know, chatting about maybe doing a refinance to do some more renovations and whatever. I’m like, “Okay, yeah, cool. Let me know when you’re ready.”
And she had emailed me and told me that there had been an accident. And this was I think it like on the Friday or something like that, it was a couple of days prior. Maybe it was even the day of the accident. And she’s like, I just can’t sleep until I know that we have coverage in place.
Clinton Wilkins: [00:07:15:26] And they had taken the coverage. Thank goodness. And we’re talking like a mortgage of three, four, or $500,000 dollars like this wasn’t just like a little tiny, you know, drop in the hat.
This was a pretty significant amount of debt. And I went right back to her and I said, yes, you do have coverage. You took the coverage and I’m going to confirm that you still have the coverage in place, because just like what you said, Todd. People sometimes take the coverage when we do the mortgage, but then they decide for one reason or another, maybe they get other insurance in place, or maybe it’s a financial challenge and they actually cancel the insurance.
I wanted to know for her that that coverage was still bound and we were actually able to connect her with the insurance company to get the ball rolling, got the forms going. And, you know, it was a tough, it was definitely a tough time, but I’m glad that we were there to help.
If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.