This is maddening. I don’t believe this is still happening. Back in 2008, CBC marketplace did a piece highlighting the bank’s highly questionable practice of selling post claim underwritten mortgage life insurance.
http://www.cbc.ca/marketplace/episodes/2008-episodes/in-denial
You would think the exposure would force them to change their ways, but this article from the Star reveals that it is worse than ever.
I guess when the industry makes billions from it, why would you stop voluntarily? I guess I was just naïve.
Basically they check whether you qualify for the life insurance when you file a claim and try to deny you then. For example, you may be making your insurance premium payments for the past 15 years and all of a sudden your spouse passes away from a heart attack. You think your mortgage will be paid off so you don’t have to worry about being able to make payments or wonder whether you can stay in the house. But when you file your claim, they may deny your claim because your spouse checked “no” to having any digestive or intestinal disorders on the questionnaire when he/she has gone to the doctor for a bout of diarrhea in the past. Similarly the claim would be denied if your spouse checked off “no” for being tested for cancer and he or she has had a pap smear or a PSA test.
The bank basically collects all the premiums whether you qualify or not. If you never qualified but never filed a claim, the bank keeps all the money and never provided you with any coverage at all. And this is all legal.
Also notice how in this article, the client has to downsize to a smaller house because she was denied her claim and the bank offers her a lousy rate to port her mortgage to her new home or charge her full prepayment penalties. All good reasons to take your business else where. In general lenders that only lend money for mortgages, do not have a posted rate list. There isn’t a overpriced rate list to play games with. Everything being equal, there is no doubt in my mind that the banks are not the way to go.
Alternative lending.ca believes the value is generally not at the banks. So whether you are in good financial shape or not, you should definitely look into non-bank lending.
