Debt is one thing that none of us ever want to leave behind for our loved ones. We go into debt for buying vehicles, properties, to start or grow a business or perhaps even some consumer debt (credit cards, lines of credit). Regardless of your debt, you will also more than likely be offered some sort of Life/Disability/Critical Illness Insurance coverage.
This type of insurance coverage is usually referred to as “Group Creditor Insurance.”
But have you ever wondered why it feels too easy to get Insurance when you go to the bank? You know, when they’re giving you the mortgage or loan documents to sign, and they say “Oh it’s only 5 questions. And it’s cheap!”.
Well, not only are they not telling the full truth, but they’re also failing to tell you some other very crucial information about the insurance coverage you’re about to buy. So why should you always pursue a personal policy instead of one of these Group Creditor policies from the bank?
1) Save Money
Believe it or not, that coverage from the bank that they told you is cheap is actually one of the most expensive ways to have life insurance. Insurance is based on a cost of how much per thousand dollars of coverage you receive and the banks charge a pretty penny for it.
A $250,000 life coverage amount on a 25-year term for a 30-year-old Female costs about $18 per month whereas that exact same coverage under Group Creditor Insurance costs just over $40 per month (these are actual numbers from a client’s current situation). If you invest that difference at 5% over the 25-year term, you have a total balance of $13,177.80!
As Owen Wilson would say... "Wow"
2) Peace of Mind
Upset about paying out the nose for coverage? Wait until you hear this part then! Banks insurance coverage is not guaranteed to payout whereas a personal policy will. Have you heard those stories on the news where someone is upset because their claim got denied? Yeah, that’s most likely a policy issued from a bank.
When you apply for personal insurance, what happens is that you go through an underwriting process before you officially get the policy. What is the underwriting process you may ask? It’s the process where there are health questions you answer to see if you qualify for that insurance in the first place.
This underwriting process means that when the policy is issued that as long as the answers were truthful and accurate that if there is a claim, you are guaranteed to get your payout. This is entirely different from creditor insurance where they complete this underwriting process at the time of the claim meaning that they may not pay out your claim.
3) Maximize Your Payout
Personally owned insurance allows you to get every single penny that you’ve applied for AND it gets directed to the person of your choosing, simple as that. Unfortunately, with Group Creditor coverage your money not only goes to the bank, but it only covers the outstanding balance of your mortgage/loan - this means that your coverage is constantly decreasing. And that’s IF you actually qualify for the coverage in the first place.
Now, If you think back to how much the cost differed between the two policies, you’ve got to be wondering how a decreasing amount of coverage is priced. Well, let me tell you that the amount you’re paying is going to be the same amount as when you first acquired the policy. That means that the increased cost is not only above average for the first year or two, it stays that way for the remainder of the term and therefore actually makes the coverage significantly more expensive.
As an example, let's say you've paid down your mortgage for 24 of the 25 years when suddenly you get into a fatal car crash. Your family makes the claim for this Group Creditor policy only to find out that even after paying 24 years of full premium amounts of the full amount of the mortgage that they don't even receive anything - the BANK will receive the proceeds. And to make matters worse, it only covers the one outstanding balance which is the 1 year left of the mortgage. Yikes!
So, the next time you go to the bank and they ask you if you want creditor insurance, make sure you contact your Financial Advisor to review the options with you first. Not only will you become more informed about the decision you are about to make but it can save lots of money, sanity and heartache down the road.
Isn't it worth a conversation if a review could save you thousands and give you peace of mind? Reach out today at Mitchell@PreussKraushar.com.