Should you purchase the bank's plan or an individual policy? Life Insurance companies underwrite the plans offered by the banks. However there are some aspects of the bank plans you should be aware of.
The insurance can be used only for your mortgage. The bank gets the money directly from the insurance company.
The insurance company controls your policy. Most companies offering coverage through the banks reserve the right to change or cancel your premium rates upon written notice. The policy is automatically terminated if you pay off or transfer your mortgage.
Your insurance coverage decreases as your mortgage balance declines, yet the premium remains the same. The purpose of the coverage is only to pay the balance of the mortgage owing at death.
Most banks have a maximum amount of insurance you can obtain, as well as restrictions. In contrast, individual policies purchased through a life insurance agent will have some distinct benefits.
- You control your policy
- You can designate a beneficiary to receive the proceeds and use the funds as they see fit
- You can purchase a policy with a level death benefit-or with some policies, an increase death benefit.
- The premiums are usually guaranteed and can't be changed
- You are the only one who can cancel your policy.
- The life insurance company can cancel your policy only if you don't pay your premiums.
Life insurance proceeds paid to a designated beneficiary on an individual policy are creditor-proof and tax-free.
