It is about time that someone exposes the real truth about mortgage life insurance. Sadly what is written on the internet about this topic is an amalgamation of unproven facts, misrepresentations and blatant lies.
As it currently stands, mortgage life insurance is a bad product. However the question we should ask ourselves is why. In other countries mortgage life insurance is a good product doing what it was designed for. In Canada this is not the case. I believe it is because of the ability of the financial industry, with the help of an uneducated press, to muddy the facts about the problems associated with this product in order to promote its own self serving agenda. Because of this, those who profit from having mortgage life insurance providing little value to the consumers can operate in the shadows without being forced to make this product better.
I hope to change this by revealing the truth and by exposing all of the lies promoted by key individuals and institutions in the financial industry. To start this debunking process I have decided to start with Manulife and its Mortgage Protection Plan which after careful review I can qualify as an extremely bad product that no consumers should ever buy.
Manulife Mortgage Protection Plan
Mortgage Protection Plan® (“MPP”) is underwritten by The Manufacturers Life Insurance Company (“Manulife Financial”). It is offered to lenders and mortgage brokers through Credit Security Insurance Agency Inc. (“CSIA”), a wholly-owned subsidiary of Manulife Financial.
Mortgage Protection Plan offers optional life and disability insurance coverage to borrowers and guarantors who are residents of Canada, ages 18 – 65. The coverage ends on your 70th birthday, the date on which you pay your mortgage or decide to cancel your protection, or stop paying premiums. The maximum coverage available is $1 million.
Contrary to what licensed life agents write on the internet stating that ALL mortgage life insurance is not portable, MPP is not cancelled if you change lenders.
It is interesting to note that Manulife produces marketing materials stating that Manulife Term insurance offered through licensed insurance agents is cheaper and offer better value than mortgage life insurance. Then Manulife produces marketing materials for mortgage brokers stating that the Mortgage Protection Plan is better than Term insurance. That’s what we call playing on both side of the fence.
It’s interesting to note that the analysis of Manulife stating that the Mortgage Protection Plan is less costly than Term insurance does not mention anywhere that the coverage of MPP is declining (going down as the mortgage is paid off) while the coverage of the Term insurance remains the same.
It amazes me that 100% of life insurance agents do not understand underwriting or the claim process. This shows how life insurance agent are ignorant about their own profession. If this was not the case, they would not write that post-underwriting is done of mortgage life insurance versus traditional insurance which they sell.
The problems with all the statements on post underwriting is that the statements are made within a vacuum where facts are absent and without the necessary perspective. Let’s gain this perspective by
looking at the MPP of Manulife.
To obtain the Manulife MPP you must go through an application process which is based of 5 underwriting questions. If you answer these five questions by the negative, you get the insurance. The problem is that the answers to these questions are verified at the time of claim while insurance agents state that if you buy life insurance through them, the answers you make on a traditional application will be reviewed prior the acceptance of the risk and issue of the policy. We shall see that this is a lie. But before we look at this, lets look at the questions asked by Manulife.
There are 5 questions on the application for MPP which must be answered by the applicant.
Questions that are easily answered:
Have you ever had or been treated for: heart disorder, chest pains, stroke, narrowing or blockage of an artery,aneurysm, blood disorder, cancer, tumours, lung or liver disorder including hepatitis or hepatitis carrier, diabetes, impaired,fasting glucose, disorder of the pancreas, chronic fatigue, fibromyalgia or other form of chronic pain, any immune system, abnormality, a positive HIV test, AIDS, or been advised by a physician to stop or reduce drug use or alcohol consumption?
During the past 12 months have you smoked any substance or used tobacco in any form.
During the past 3 years have you been absent from work for medical reasons for a month or longer?
Question 1,4 and 5 are cleared and easily answered. As a result, there are no possible way for Manulife to deny a claim after the death of the insured unless the insured has lied on the application.
Questions that are impossible to answer:
During the past 3 years have you had or been treated for: mental or nervous disorder (depression, anxiety, stress, etc.), neurological disorder including seizures, high blood pressure, kidney or urinary disorder, gastrointestinal bleeding, back or knee pain, arthritis, other musculoskeletal disorder or any other illness, disease, operation, injury, or congenital defect not listed?
Now the first part of the question is clear but note the last part of the question: “any other illness,disease, operation, injury or congenital defect not listed.” The definition of an illness is any period of sickness affecting the body or mind. As a result, there are absolutely no one in Canada that can state that they did not have such a period in the last three years. If you had a cold or flu, you must answer yes to this question as stated. However most people will answer by the negative and as a result this gives a way for Manulife to deny a claim in the event of death by declaring the mortgage life policy to be void.
Why would Manulife do this?
By doing this Manulife is able to include in the Mortgage Protection Plan an option to deny any claims in the first two years because it knows that 90% of people will answer this question incorrectly. Insurance laws provide that an insurance contract is voidable in the first two years (incontestability clause) if there are any misrepresentations found in the application. After two year, the insurance is voidable only if there was a material misrepresentation made resulting in Manulife to not issue the coverage if it had known you had a cold within three years of the policy being issued for example.
So basically the Mortgage Protection Plan is the equivalent of a guaranteed issue product which contains a provision that the death benefit is not payable in the first two years of the policy.Who would, being or right mind and knowing this, buy this shitty product?
Are you currently disabled, or under investigation or using medication or other treatment, or have you been advised to have further investigation, treatment, or surgery, or been referred to another doctor?
When I worked for insurance companies, I not only designed and priced insurance products but I also wrote insurance product contracts. I can tell you that in writing a contract every word is analysed and chosen for a specific reason.
Please note the use of the word “medication” in the Question 3. The definition of medication is any substance used in treating disease or relieving pain. You are taking aspirin for headache, or you are taking Rolaids for an upset stomach, this is medication. As a result, you would have to say yes to this question. Basically medication includes all over the counter medication. If Manulife had not wanted to know about whether or not you are using cold medicine or antacid, it would have used the term “prescribed drugs.”
The problem is that most people would answer no to this question making their insurance voidable in the first two years.
How can Manulife get away with this?
The beauty of this is that when Manulife denies an insurance claim for mortgage life insurance, it never gets the blame for this. For example, if the MPP was issued through the Bank of Montreal, it will be Bank of Montreal that will take the blame when Bank of Montreal has no involvement in denying the claim.
This is the result of life insurance agents that are trying to prevent Banks from selling life insurance products. Basically they make the banks the bad guys and as a result they don’t have to explain why they are selling the products of Manulife which is the true bad guy of this story employing commercial practices that are fraudulent by their nature!!!.
What is worst is that journalists actively participate in this cover-up. All the articles printed by journalists about cases where a death benefit is denied on mortgage life insurance only mentions the bank never the insurance company. This is a huge oversight that can only be intentional.
As we shall see in Part 2 of Debunking Mortgage Life Insurance, the issue is not post-underwriting. The issue is how questions are written on the application and how they are asked. Are medical questions written better on traditional insurance versus mortgage life insurance? I would answer by the negative when considering the amount if civil lawsuits involving unclear questions on traditional insurance applications (Kong vs Manulife). The difference is when you buy mortgage life insurance the person giving you the application is not licensed and cannot help you or clarify anything in regards to the application process. So you are on your own.
When you buy traditional insurance, the insurance agent may or may not fill the insurance application. They can therefore ask you the medical questions found on the application and if you don’t understand a question, it is their responsibility to explain it to you and to help you in answering the it correctly.
Does the amount of misrepresentations made by insurance agents and journalist have an impact on the value provided by mortgage life insurance? The answer is yes. Since Manulife is never blamed for any claims denied, it has no incentives to change and improve this product. This means that the Canadian Mortgage life insurance, as a product, has not evolved to meet the needs of Canadians making it an noncompetitive product but this does not have to be. Let’s compare to the USA. In the USA, you can buy mortgage life insurance after answering one simple basic question:
CT residents: During the last two years,have you ever had, been told you had, or have you ever been treated for:cancer,heart attack and coronary disease,stroke, cirrhosis, Acquired Immune Syndrome Deficiency (AIDS), AIDS related complex (ARC), or AIDS related conditions.
This question is clear and no amount of post-underwriting would help the insurance company deny the claim if you have answer this question correctly. This is what we need in Canada!!!
Until then, never buy the MPP unless you understand the questions and are willing to answer these questions correctly. When in doubt answer by the positive. Since getting the MPP would not be issued automatically for most Canadians and would require more underwriting you are better off going with a simplified issued insurance product.
Don’t miss Part 2 where we will focus on post-underwriting debunking all the lies surrounding this topic.