The price of Term Insurance is Dropping!

If you willing to redo your paramedical and possibly your blood work the benefit could save you hundreds of dollars over the term of your life insurance policy.

Let me explain. 

Not unlike mortgage interest where the choice is yours to lock in or stay variable when signing the initial mortgage paperwork; term insurance, created to protect your biggest asset during your debt and child rearing years, is dropping in price and control to re-do the policy is yours. 

The reason for falling premiums is due to death rates decreasing.  Term insurance is priced based on a time duration of the term taken and mortally rates at the time; term 10 is the most common although 5 year terms are least expensive.   

If you are willing to re-visit your life insurance agent for a price quote after 5 years of your term insurance placement, you will find the price is likely to be cheaper than when initially purchased; sometimes up to a 25% savings going forward.

Term insurance is simple, underwritten at time of application and paid directly to your beneficiaries’ tax free.  Bank mortgage insurance coverage has the beneficiary as the bank, your premiums are level although your mortgage is decreasing and your family does not receive the death benefit. Bank insurance uses blended smoker/non-smoker rates causing higher pricing for non-smokers. Most bank mortgage insurance is NOT underwritten at time of application meaning your mortgage payoff is decided at time of death.

Information is the right of everyone; pass it on so we make better choices and keep your money in our hands.

For additional information on Term Insurance and how you may benefit on a term insurance  "refinance", please contact me.

Sandy Allen

Sun Life Financial Insurance & Mutual Fund Agent– White Rock, BC

Sandy.allen@sunlife.com

Canadian Mortgage Penalties

This is one of the most difficult and controversial topics related to mortgages.  However, below is a general overview on how penalties work.

Most lenders charge an early payoff penalty on closed mortgages if the debt is paid prior to the maturity of the term. The lending institution must describe the penalty they could charge on the mortgage document.

The most common penalty is:

The greater of three months interest penalty OR  the interest rate differential.

In other words, whichever amount is the larger of these two figures will be your penalty.

One very important point of mention is what when  you are calling your lender to find out what your mortgage penalty will be upon payout (for a refinance) make sure you ask your lender to provide you with the penalty amount AFTER taking into consideration your pre-payment allotment for the year (usually about 20% of your total mortgage balance).  You will be using the proceeds from your new, refinanced mortgage to pay your pre-payment allotment and you should make sure that you aren’t charged for that amount.  Lenders generally won’t take the pre-payment amount into consideration unless specifically asked too and it can make a significant difference in your penalty amount.

THREE MONTHS INTEREST PENALTY (most commonly used on variable rate mortgages)

If you are paying off your mortgage before the maturity date, most lending institutions charge three months interest penalty (or an interest differential penalty).

Your present mortgage balance is multiplied by your current interest rate and multiplied three.

INTEREST RATE DIFFERENTIAL / LOSS OF INTEREST (most commonly used on fixed rate mortgages)

This usually means the difference between the interest rate on your mortgage contract compared to the rate at which the lending institution can re-lend the money.

For example:

If your mortgage has a balance of $125,000 at 9.25%, you have 2 years left to go and the current 2 year mortgage rate is 6.25%. Then the lending institution will probably charge you -

$125,000 X 24 months X 3% (9.25 - 6.25) = $7,266.21

However, just to further confuse the issue, the penalty above has not been present valued. This is when a lender charges a lower penalty because you are paying all of the 'extra' interest (in the example 3%) now, not over the remaining term. Some lenders present value, other lenders do not.