A bank or financial institution issued mortgage insurance policy is underwritten at the time of claim! Not when it is applied for!
In addition, the questions associated with the application are very broad; which allows for potential claim denial.
In some instances the bank or financial institution has never forwarded the application to the insurer and therefore there was no insurance coverage even though the bank collected the premiums.
You may become uninsurable prior to renewal! A new policy is applied for when the mortgage is renewed at the end of the term (even if you use the same institution). You may even be issued a policy on renewal but it is worthless
WHY YOU SHOULD OWN YOUR OWN INSURANCE!
1- Definitely Covered
You are insured for the Full Value of the insurance policy when it is delivered and you have accepted it. It is underwritten when the policy is issued. You are guaranteed the amount insured unless there was a fraudulent misrepresentation on your part.
2- Guaranteed Renewable
Upon expiration of the term, you are guaranteed to be able to renew the insurance policy without medical requirements at the amount stated in the policy, at the time of issue. Even if you have a terminal illness; you can renew your insurance!
3- You Control The Policy NOT The Bank
Your survivor may not wish to pay off the mortgage with the proceeds. There may be other expenses more pressing or more importantly in the case of a terminal illness up to 50% of the face amount can be used for medical expenses or to fulfill the “bucket list”.
4- Level Amount of Insurance vs. Reducing Mortgage Insurance
The policy can be a level amount instead of the reducing amount provided by banks, etc. In my experience people end up needing more insurance until they reach a certain age. In fact you may add a rider to the policy guaranteeing you to be able to purchase more insurance without evidence of insurability.
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