Individual Insurance Policy | Bank-Owned Insurance Policy | |
|---|---|---|
| Policy Owner | You | Lender |
| Death Benefit Type | Remains constant during the lifetime of the policy* | Decreases with every mortgage payment |
| Amount of Coverage | Your choice – the amount of life insurance can be chosen to meet your needs | No choice – Coverage matches mortgage amount owing at death and decreases as the mortgage is paid, although your premiums do not decrease accordingly |
| Term | Your choice – typically 5-, 10- or 20-year terms are available, often with the option of converting to permanent insurance | No choice – your coverage is cancelled when the mortgage is paid or moved to another lending institution |
| Beneficiary | Your choice – You can name anyone you wish to receive the insurance proceeds | No choice – The lender is the beneficiary and will receive the insurance proceeds |
| How the insurance proceeds are used in the event of death | Your choice – Life insurance proceeds are paid as tax-free cash, and your beneficiary can spend, save, or invest the money any way they choose | No choice – Insurance proceeds are paid directly to the lender |
| Other uses for your policy | Your choice – You can use the same policy to cover your general life insurance needs as well, such as paying off outstanding debts or funding your childrens' education | No choice – Only the current mortgage amount is covered |
| Premium payments | Your choice – Most insurance companies offer monthly, quarterly, or annual payment schedules | No choice – Insurance premiums are added to your mortgage payment |
| Premium discounts | Premium is affected by gender, age, and smoking status | Premiums are usually the same for all clients of same age |
| Portability | Yes – Your insurance is not linked to the mortgage and stays with you regardless of where you live, work, or where you obtain or renew your mortgage | No – Your insurance can be cancelled if you renew your mortgage with a new lender, or even if you refinance at the same institution |
| Professional advice | Yes – Personalized service from a licensed life insurance advisor to address your financial security needs | No - Advice is typically limited to the mortgage insurance product only |
| Regulated sales | Yes – Only licensed life insurance agents can sell individual life insurance policies | No – Retail bank staff and mortgage representatives are not required to meet life insurance licensing or education requirements |