Mortgage Insurance In BC: How Are Mortgage Insurance Premiums Decided

You can count on three main factors affecting the cost of your mortgage insurance. If you compare a similar policy, you may receive different quotes, based on the size of the loan, and the condition of the owner (age, smoker or non smoker).

Both mortgage life (to assure payment of the home loan at the death of the insured) and disability (to provide income for paying the mortgage in case of the disability of the insured) use the same criteria to price the premiums.

Since the age and health of the insured is one of the most critical determinants of when a policy will be paid, they are the most important determinant of the premium. Many mortgage life and disability policies will not require a physical, only a statement of health condition. This can be risky, since any statement that would infer good physical can be used negatively if the claim is processed and it turns out a health condition (or smoking) was kept from the insurer. Many smokers think they may be able hide this fact and keep the premium lower, and believe the insurance companies can’t know. The answer is, they will know; if you suffer a debilitating heart attack, the cause can almost always be found, and you will have paid all that money and still left your family unprotected.

Recognizing this limitation, many companies now have Regular (for smokers) and Non-tobacco, available for applicants who do not now use tobacco or have not used it within the prior twelve months period. Needless to say, the increased risk is built into the various premiums.

Bear in mind that insurance policies that are available without a physical have previously priced the additional risks into the premium. So those who are in extremely good health should consider taking the physical to see if lower premiums are available for him.

Age is a big piece of the way premiums are priced, and if you compared a quote for a 38 year old, same size loan, same length left on the mortgage, it would be less than half that of a 50 year old. Reducing the principal on the mortgage changes the premium by a few dollars, so it is easy to see that the actuarial tables are what drives this pricing. It is not surprising since, in addition to the risks of age and health, the chances of the premium being paid longer are much better.

The mortgage amount has an affect at a certain level, however. Prior to the $250,000 threshold, however, there is not a big impact on prices. But once the value of the home that is insured starts to go up, the insurer will require a full application and an individualized quote, and of course, the property itself will have to be assessed.

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