After getting approved for your mortgage, most banks require you to purchase insurance if you put down less than 20%. Many see having insurance as being a smart move, even if it isn’t a requirement. Still, it’s reassuring to know if something happens and mortgage payments can’t be made, you’ll still be covered.

But which kind of insurance do you take? The coverage offered by the bank? Or do you look at alternatives such as mortgage-life insurance through a financial advisor?

Well, if you look into the bank provided mortgage policy a little closer, you may be in for a big surprise.

Your insurance coverage continually declines as you pay it off.

That’s right, with a banked-owned credit-life policy, the more you pay off your mortgage, the less you will receive if a claim is made. This doesn’t sound very intuitive, but happens because the bank’s insurance is meant to protect one thing only – their loan to you. It’s solely tied to your mortgage balance, and if you pay off your mortgage in full, your coverage ends, and you paid all that money for nothing.

With insurance through a broker, the idea is to give you full protection in the event of death no matter how much you have left on your mortgage. Your contract is between the insurance company and you, and is NOT tied to your mortgage in any way and will never decrease. Since coverage isn’t tied to the bank, if you move or transfer banks, your coverage moves with you.

For example – through bank-owned credit-life insurance, if you’ve taken out a 300k policy and had paid off 250k at the time of your claim, you only are entitled to the remaining balance of 50k, which automatically goes to the bank to pay off the remaining mortgage balance.

With mortgage-life insurance, if you take out a 300k policy, no matter how much of your mortgage you’ve paid down, your family gets paid the full 300k. In this case, your family (and not the bank) is the beneficiary of the money, and can choose to spend the money however they wish.

Many people don’t consider the other costs associated with the death of a family member. Sometimes it is decided that the mortgage is the best thing to pay off, however there may be other priorities at the time: funeral costs, living costs, loss of income, or relocating costs. A Credit Life insurance policy gives your family the power to decide what’s best for them at the time.

As long as the coverage matches or exceeds the amount of your mortgage loan, this will satisfy many banks’ requirements for you to have insurance on your mortgage.

By speaking with an independent insurance advisor, they will point you in the right direction and make sure you are in control of your policy. With mortgage-life insurance, you can rest easy knowing you’re in full control, and your coverage is guaranteed never to decrease.