Mortgage paid off? Ask for home insurance discount

August 30 2010 by Ellen Roseman

Home insurance companies offer discounts for a bunch of reasons. Here’s an article I found that mentions 15 ways to save, but omits one key fact.

If you own your home free and clear, you can save on home insurance. Canadian Capitalist noted this in a recent post.

Take If Shari, a reader who paid off his mortgage in 2004. He wanted his insurer to pay back all the foregone discounts.

We have been insuring our home and two cars with Aviva for many years, paying several thousands dollars each year.

Just yesterday, I have discovered that they allow a discount on home insurance if you are mortgage free. The amount is quite significant at $80 for just this year.

Aviva never notified us of the existence of such discount. If we had been aware, we would have definitely advised them earlier.

I told him that I doubted he would be reimbursed for six years, but he wanted me to try. So, I contacted the company complaints officer, whose number I found through the Financial Services Commission of Ontario.

Guess what? He got a positive response the same day.

Ellen, it worked! Someone called to say she will be giving me a refund of all the past years’ overpayment. Thanks to you! Ellen, you don’t know your own power!

Glenm Cooper, the media contact at Aviva, said my interest helped speed up the refund. But it would have come anyway because the customer had attached a letter from the bank, testifying to his mortgage-free status since 2004.

So, ask your insurer about mortgage-free discounts. I called mine (TD) and found it offered one, though this discount didn’t make the list at its website.

I’m still waiting to hear why the insurance companies think there’s less risk once the mortgage is paid off. Maybe readers can explain it.

News flash: I’m giving my evening course at University of Toronto, Investing for Beginners, starting Thursday, Sept. 16. Here’s a link for information and registration.

12 comments

  1. Jason

    Aug 31 2010

    What good is a discount with TD when their rates are one of the highest around?

    Even after a handful of discounts you’ll end up paying more than you would be paying with another company right off the bat, without even asking for any discounts.

    I wouldn’t recommend them for any type of insurance until they drop their rates to something more reasonable.

  2. bylo

    Aug 31 2010

    “I’m still waiting to hear why the insurance companies think there’s less risk once the mortgage is paid off.”

    My guess: If you own the property outright then you have a stronger incentive to take care of it and protect it than someone who owns only 5% or 10%. Of course by that logic the insurer should offer a sliding scale of discounts as your equity increases, however, that would be impractical to enforce. Also by this logic someone who’s “underwater” is more likely to commit arson, etc. to try to free themselves of their obligation.

    Another possible reason, not that I agree with it, is similar to why they use the insured’s credit rating to determine the premium.

  3. Canadian Capitalist

    Aug 31 2010

    Thanks for the mention Ellen. I’m guessing actuarial studies show mortgage-free home owners do not make as many claims as those with a mortgage. Just a guess though.

  4. Million Dollar Journey

    Aug 31 2010

    What if your are mortgage free but with a HELOC? Does the discount still apply?

  5. Canadian Capitalist

    Aug 31 2010

    @MDJ: The discount only applies to homes that are free of any liens. A secured line of credit is treated like a mortgage even if the balance is zero.

  6. Ellen Roseman

    Aug 31 2010

    Here’s information about how a line of credit secured against your home can raise your home insurance premiums, if you were mortgage-free before.

    It also explains why insurers think you’re less of a risk if you have no mortgage or credit lines. (It’s a column I did back in October 2005 and obviously forgot about until now.)

    ———————————————————–

    “I recently took out a home equity line of credit. As a result, my home insurance premium went up, ” said Carmelita Rabanillo. “Is this normal?”

    Normally, taking out a line of credit doesn’t affect your home insurance costs. But it did in this case and we wanted to find out why.

    The answer: some insurance companies offer a break on premiums if there’s no mortgage on your home.

    Since Carmelita and Jeremiah Rabanillo own a paid-up house in Mississauga, they were getting a 15 per cent mortgage-free discount from ING Insurance.

    By using their home to secure the line of credit, they became ineligible for the 15 per cent discount.

    Many people don’t realize that a line of credit secured by your home is the same as a mortgage for insurance purposes. It’s a lien against your property.

    The financial institution that provides the line of credit is generally named as an insured party on the home insurance policy.

    This creates extra risk for the insurer.

    The couple didn’t realize their paid-up house entitled them to a break on their home insurance premiums.

    Last spring, they were at a CIBC branch when their financial adviser told them about a promotion on the Home Power Line of Credit.

    Customers could have their set-up fees waived – a savings of $595 – if they met certain conditions.

    “My husband had been given early retirement, so the timing was convenient,” Rabanillo says.

    “We didn’t really need a line of credit, since we have savings and two rental condos. But our adviser said go ahead. It won’t cost you anything.”

    The line of credit was approved on June 30. The couple had the $595 set-up fee debited right away, but were told they would be reimbursed if they had an outstanding balance of at least $25,000 by Aug. 30.

    “Meanwhile, the $595 was accruing interest,” Rabanillo says. “The fee was reversed, but of course I had to pay $21.28 interest.”

    Then, the other shoe dropped.

    ING was notified that the home equity line of credit had been approved and sent a $19.64 bill to cover extra insurance costs from June 30 to Aug. 17.

    It later sent a revised renewal notice, showing a $150 increase in premiums for the upcoming year.

    By early September, the couple owed nothing on their line of credit. But their insurance premiums would stay up, they were told, as long as they used their house as collateral for a loan.

    Rabanillo called CIBC and said she wanted to cancel a line of credit she didn’t need.

    “The bank insisted it would be good to have for future use -and it would cost us $100 to cancel, ” she told us. “Either way, we’d lose.”

    On Your Side asked CIBC to waive the $100 cancellation fee. This seemed only fair.

    The customers had come under pressure to take a promoted product and suffered a bad outcome they didn’t anticipate. No one warned them about a possible increase in home insurance costs.

    Within a few hours, Rabanillo got a call from the bank.

    “The line of credit will be cancelled and the $100 fee will be waived. As well, the interest I paid will be refunded, ” she said. “I am glad that we still have guardian angels like you.”

    Rina Cortese, a spokeswoman for CIBC, said the $100 cancellation fee paid for the discharge of the security (the home).

    She said in this case, the issue had been resolved to the customer’s satisfaction.

    Now it was ING’s turn. Would it roll back insurance premiums to the previous level?

    “Since they cancelled the line of credit, we will be pleased to reinstate our mortgage-free discount, ” said Gilles Gratton, a spokesman for ING Canada, one of Canada’s largest general insurance companies with 3 million customers.

    He suggests consulting with your insurance broker or insurance provider to make sure you receive all the discounts you’re entitled to.

    Discounts vary from one company to another. They’re usually disclosed on the policy documents sent out each year.

    If you’re getting a line of credit, think carefully about whether you want it secured by your home equity or unsecured.

    A home equity line of credit has a lower interest rate, but the savings could be offset by the costs involved in setting it up.

    And remember, lenders have a financial interest in your property once they advance the line of credit.

    It makes no difference whether you borrow money or not. You may lose your mortgage-free discount as a result.

    “I recently took out a home equity line of credit. As a result, my home insurance premium went up, ” said Carmelita Rabanillo. “Is this normal?”

    Normally, taking out a line of credit doesn’t affect your home insurance costs. But it did in this case and we wanted to find out why.

    The answer: some insurance companies offer a break on premiums if there’s no mortgage on your home.

    Since Carmelita and Jeremiah Rabanillo own a paid-up house in Mississauga, they were getting a 15 per cent mortgage-free discount from ING Insurance.

    By using their home to secure the line of credit, they became ineligible for the 15 per cent discount.

    Many people don’t realize that a line of credit secured by your home is the same as a mortgage for insurance purposes. It’s a lien against your property.

    The financial institution that provides the line of credit is generally named as an insured party on the home insurance policy.

    This creates extra risk for the insurer.

    The couple didn’t realize their paid-up house entitled them to a break on their home insurance premiums.

    Last spring, they were at a CIBC branch when their financial adviser told them about a promotion on the Home Power Line of Credit.

    Customers could have their set-up fees waived – a savings of $595 – if they met certain conditions.

    “My husband had been given early retirement, so the timing was convenient, ” Rabanillo says.

    “We didn’t really need a line of credit, since we have savings and two rental condos. But our adviser said go ahead. It won’t cost you anything.”

    The line of credit was approved on June 30. The couple had the $595 set-up fee debited right away, but were told they would be reimbursed if they had an outstanding balance of at least $25,000 by Aug. 30.

    “Meanwhile, the $595 was accruing interest, ” Rabanillo says. “The fee was reversed, but of course I had to pay $21.28 interest.”

    Then, the other shoe dropped.

    ING was notified that the home equity line of credit had been approved and sent a $19.64 bill to cover extra insurance costs from June 30 to Aug. 17.

    It later sent a revised renewal notice, showing a $150 increase in premiums for the upcoming year.

    By early September, the couple owed nothing on their line of credit. But their insurance premiums would stay up, they were told, as long as they used their house as collateral for a loan.

    Rabanillo called CIBC and said she wanted to cancel a line of credit she didn’t need.

    “The bank insisted it would be good to have for future use – and it would cost us $100 to cancel, ” she told us. “Either way, we’d lose.”

    On Your Side asked CIBC to waive the $100 cancellation fee. This seemed only fair.

    The customers had come under pressure to take a promoted product and suffered a bad outcome they didn’t anticipate. No one warned them about a possible increase in home-insurance costs.

    Within a few hours, Rabanillo got a call from the bank.

    “The line of credit will be cancelled and the $100 fee will be waived. As well, the interest I paid will be refunded, ” she said. “I am glad that we still have guardian angels like you.”

    Rina Cortese, a spokeswoman for CIBC, said the $100 cancellation fee paid for the discharge of the security (the home).

    She said in this case, the issue had been resolved to the customer’s satisfaction.

    Now it was ING’s turn. Would it roll back insurance premiums to the previous level?

    “Since they cancelled the line of credit, we will be pleased to reinstate our mortgage-free discount, ” said Gilles Gratton, a spokesman for ING Canada, one of Canada’s largest general insurance companies with 3 million customers.

    He suggests consulting with your insurance broker or insurance provider to make sure you receive all the discounts you’re entitled to.

    Discounts vary from one company to another. They’re usually disclosed on the policy documents sent out each year.

    If you’re getting a line of credit, think carefully about whether you want it secured by your home equity or unsecured.

    A home equity line of credit has a lower interest rate, but the savings could be offset by the costs involved in setting it up.

    And remember, lenders have a financial interest in your property once they advance the line of credit.

    It makes no difference whether you borrow money or not. You may lose your mortgage-free discount as a result.

  7. Sas

    Sep 9 2010

    First of all, I’d like to thank Ellen and all for the info. My mortgage has been paid off. I called my insurance underwriter to inquire about the discount. The service agent at first refused to apply the current year’s discount.

    When I asked to discuss with his supervisor, he put me on hold for 20 minutes. Then he agreed to the current and future year discount of 10%, but declined to offer discounts for previous years. He did not request documents.

    I followed the link in this blog and called the ombudsman’s office. It took a message and passed on to the insurance. The same agent called back and again declined my request for the previous years’ discount (albeit in a rude telephone conversation).

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