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Banks know that the financial weight of a mortgage can scare people into thinking about what happens if they die suddenly, or develop a health condition that prevents them from working.

That’s why they make this sales pitch to their mortgage customers: Buy our life, disability and/or critical illness insurance to protect you and your loved ones if you can’t pay your mortgage. You should definitely consider insurance like this, but not the kind your bank sells. Instead, buy it from an insurance company.

Several reasons to not to buy bank mortgage insurance can be drawn from the experience of personal injury lawyer Nainesh Kotak. Mr. Kotak gets called by people who bought mortgage life, disability or CI insurance from a bank and had their claims denied.

A big reason for these denials is that only cursory attention is made to your medical background during the sales process by banks. “They rely solely on six or seven questions that are quite confusing, or they’re quite broad,” Mr. Kotak said. “So, there’s a lot of room for denied claims.”

How much insurance do I really need?

CI and disability claims can be denied when an insurer decide the medical issue in question existed before you bought coverage. With a traditional insurer, a detailed questionnaire must be completed before coverage is set, and a medical exam may be required as well. No insurance offers guaranteed payouts when you make a claim, but Mr. Kotak believes you have a better chance of success when dealing directly with an insurance company and not your bank.

Another reason cited by Mr. Kotak for passing on bank-sold mortgage insurance is that the money paid out in a successful claim goes back to the bank to cover your mortgage. You don’t have the flexibility to use the money however you choose, as you would with a policy from an insurance company.

Also, the premiums for mortgage insurance from a bank stay level, even as the balance owing on your mortgage declines. When you buy a policy from an insurance company, you choose a level of coverage that remains constant. Mr. Kotak said his research has found that the cost of coverage from a bank or an insurance company are comparable.

Term life insurance, CI and disability are widely available from life and health insurance companies, and comparative quotes can be found online. Mr. Kotak said banks selling insurance have customers in a vulnerable spot. They’ve just taken on a big debt and are offered a way to protect their families by buying coverage.

“People will go and do it,” Mr. Kotak said. “But I don’t think it’s a wise investment.”

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Reader comment

This comment was generated by a recent newsletter about electric vehicle prices: “The appetite for Teslas is not just among the affluent. Just returned from Vancouver where nearly every second Uber was a Tesla. When I asked our driver about this, he said it because “you can get them in a few weeks of ordering one.” Try to get a Toyota, Hyundai, Volkswagen etc. and you are on a waiting list for 2025 (if you are lucky). Uber drivers are not affluent. They are driving Teslas because they are available, and the other manufacturers are not keeping up with the demand. Another interesting thing he told us is there are no options on Teslas because they come “fully loaded” with every possible option. He said if you do go to buy a different brand, you find you need to add on options and they end up being close to the same price as a Tesla.

Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.

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