Don’t buy insurance from banks

April 1 2009 by Ellen Roseman

Banks love to sell insurance as an add-on to an existing product.

Sign a mortgage and they wil ask you about getting life insurance and critical illness insurance at the same time. Just a small increase in your monthly payments.

Take out a credit card and they will try to sell you insurance to protect you if you can’t make the minimum monthly payments. Often, they give it free for a few months and give you the option of cancelling afterward.

Many people don’t know they have credit balance insurance, since they don’t believe banks use negative option marketing. The information about having to cancel the insurance to stop it is slipped into a package you get along with the card.

Sometimes, borrowers feel they have to buy the insurance or lose the loan. The banks make you sign a waiver form, saying you’re on your own if you get sick or die. Now that’s pressure.

What you may not realize is that banks do “post-claims underwriting.” This means they don’t check your medical history in advance. They just ask you a few questions and then decide, based on your answer, whether or not you qualify for insurance.

Only when you or your loved ones make a claim under the insurance do they contact your doctors and start checking into your medical history. Then, they may decide you don’t qualify for coverage — and in fact, you may never have qualified — despite having paid premiums for all these years.

If you don’t believe me, check the column I did about a couple in this unfortunate position.

Luckily, I helped them get the coverage they thought they had. But the bank insisted they were at fault for misrepresentation on their application.

I know that if you buy insurance from a qualified insurance agent or broker, the proper checks will be done long before you have to make a claim and face possible denial for being ineligible.

39 comments

  1. Brian Poncelet,CFP

    Apr 14 2009

    Ellen,

    Another reason to get your own policy is that someone’s health may not be perfect (overweight, high blood pressure, etc.).
    By getting a policy that may be rated (priced higher), you can get the coverage that cannot be offered by the banks on the one page questionnaire.

    If your health gets worse, you could “convert” the term policy to permanent coverage without any medical. The key is to get a policy you can convert if you are looking at a short term coverage only.

    A great site to check out is http://www.assuris.ca. Assuris is a not for profit organization that protects Canadian policyholders in the event that their life insurance company should fail.

  2. cecile

    Apr 29 2009

    I worked for a major bank for many years, a lot of it in mortgages. What people do not understand is the mortgage insurance is paid out on a declining balance. An example is say your mortgage is $200,000. You pay it for 2 years and the balance is $180,000. Say you pass on. The insurance company will only pay out $180,000-not the $200,000. And amazing enough, even though the mortgage balance is declining, the insurance premium is still charged on the original $200,000, not matter how long the mortgage lasts. Best to get term insurance which will pay out the face amount. As well you are approved right away-not when you need it, like the bank insurance companies.

  3. ML

    May 22 2009

    Sorry to rain on what appears to be a slam on the Big banks, but funny how the big insurance companies come away unscathed by all this chatter! Even though they underwrite their policies up front, they don’t simply honour their claims.

    According to Canadian industry statistics, only 75% of Life Insurance policies are accepted at standard rates by insurers and only 97% of claims are honoured.

    On the Critical Illness side of things, only 85% of claims are paid.

    The banks may not be perfect, but I think they provide a valuable service and regardless of what you think, a recent actuarial study out of Toronto said that they pay 95% of their claims and accept over 90% of applicants (15% after underwriting).

  4. Florence Roden

    May 26 2009

    I have been paying premiums on a mortgage life insurance policy since November 2003. When I filled out the application with my banker, I stated that I was a smoker and in business for myself. My premium was to be $283.33 per month.

    My banker advised that I may not qualify for the wage-loss provisions of the policy or for the critical illness provision. If so, my premium would be reduced accordingly.

    I signed a form for automatic withdrawal of the premiums from my bank account and when they started taking the premiums, they only took $147.98.

    Due to my current business situation, I called Cumis and reqested that they cancel my policy. I was informed that I was paying for wage-loss benefits that I would never be entitled to and therefore they would reimburse me for those premiums going back to 2003. They also convinced me to stay with the policy, as it included the critical illness provision that could come in very handy.

    I had assumed that because the premium was reduced, I wasn’t covered for these provisions and said so, but the woman advised me that I was covered.

    A couple of days later, and intermittently over the next two weeks, I got a calls from a supervisor. She started out asking me if was a smoker in 2003, a question I did not answer. Instead, I asked her if she had my application. Did it not state that I was a smoker?

    She advised me that I was at fault for not having paid the proper premium and they would want me to make up the premiums.

    I said that I had signed the automatic withdrawal card and THEY were the ones who were at fault. I told her that had the premium been $283.33, I would have cancelled years ago.

    I then asked her if I would have been covered had I died or become critically ill. She told me that I would DEFINITELY NOT have been covered.

    I told her that if I wasn’t covered, I wanted the return of my premiums because they were taking my money fraudulently and leading me to believe that I was fully covered. She asked me if I wanted to cancel the policy and said if I was willing to cancel the policy, they would reimburse me all of my premiums going back to November 2003.

    Today, I got a call from James from Cumis’ Vancouver office, stating that they will reimburse me for the wage-loss portion of my premium, but not for the rest. He stated that had I died, my family would have had to come up with the remainder of the premiums before they would pay out anything.

    Where do I stand and what can I do?

  5. tony

    Mar 11 2010

    hi I’m in a little bit of a situation. My father who’s 70 doesnt have any insurance, but a house with a mortgage that was renewed last year. He has cancer. Is there any type of insurance i can get for him? My main worry is my mom, who’s been a housewife and never worked.

  6. Wendy

    May 26 2010

    I’ve run into a similar problem with post-claim underwriting of a life insurance policy that I had for my husband. He passed away in 2009, but the life insurance company (Manulife) only investigated his medical history after he was gone.

    This was a CAA group policy obtained through the Alberta Motor Association and the policy was originally taken out in 1996, so naturally the medical records are ambiguous and some records are now unobtainable.

    Manulife took almost an entire year to reject the claim, and that has caused me undue financial hardship and emotional stress. They took all the time they needed to reject the claim, and have given me 60 days to come up with medical records that have been destroyed.

    To add insult to injury, they also collected the insurance premiums for all those years and they have no intention of paying those back.

    The CAA refuses to intervene on my behalf. They say I am insignificant in the large world of insurance and Manulife would only refuse this claim if there were really something wrong with it.

    Anyone who is considering taking out life insurance through the CAA should definitely look elsewhere.

  7. Steven Taylor

    Oct 31 2011

    Stay away from Sun Life!

    I had a minor heart attack on June 11 of this year. Two months later, I remembered that I had mortage insurance (death and disability).

    So I called Sun Life and informed them of my heart attack. At that point, I was told that I had to cover the first 4 weeks as my deductible, no problem.

    Then I was told that I would be sent forms that I needed to bring to my surgeon, my family doctor and my employer. I received these forms a couple of weeks later, filled them out and sent them back to Sun Life.

    After another 3 or 4 weeks, Sun Life said they wanted my health history from my doctor for the last 5 years. I guess they figured I was trying to rip them off and they wanted to make sure I was legit.

    Having nothing to hide, I asked my doctor to make all the copies needed by Sun Life for this claim.

    After playing phone tag with my doctor and Sun Life for another 5 or 6 weeks (mostly waiting to hear back from Sun Life), they said that they had received the files and were reviewing them. They would get back to me within the next 7 or 8 business days, which brings us to today.

    Today, I called them up to see what the status of my claim was. Sun Life said my claim had been disqualified because, after reviewing my doctor’s notes, they noticed that I had some arthritis on my left knee that I had neglected to mention in my application.

    You heard that right, arthritis! I thought the rep was pulling my leg and I asked her to repeat that. She did and I lost it!

    Basically, Sun Life will refuse you disability insurance if you have arthritis on your knee! She insisted that no one would recieve the insurance with mild knee arthritis.

    I’m here to tell you: DO NOT APPLY FOR ANY DISABILITY MORTAGE INSURANCE WITH SUN LIFE!!!

    They saw nothing on my doctor’s form that said I was misleading them or had a pre-existing heart condition, so they found the only thing they could to use to disqualify me.

  8. marc taillefer

    Mar 2 2012

    I supposedly have insurance on my credit card, but now I have cancer I don’t qualify because it doesn’t kill you fast enough.

    I don’t understand why a company like CIBC Visa would have anything to do with Canadian Premier Life Insurance Co.

  9. elizabeth barry

    Apr 1 2012

    To be honest, I don’t believe any more in health insurance;You cannot get these companies to pay you, after you pay them for years and years and keep within the rules of the original questions. WE need a collective voice on insurance. I don’t believe the 97% paid out, all I ever hear from friends is the disappointment and disbelief they experience when they hear the utter nonsense (you didn’t tell us your Doc said take a baby aspirin a day!) to prevent them from having to pay you. Perhaps we can form our own groups and insure ourselves.
    I pay car, longterm health, condo, umbrella, cottage, personal articles, travel, all these insurances each month. I could actually put that money in the bank (well except for the arm I guess) and use that to get out of trouble. When I am away, and check my bank & visa from away, all the debits are nothing but insurance (ok and taxes). sigh. All my clothes are second hand!!!!

  10. elizabeth barry

    Apr 1 2012

    sorry- i meant “except for the “car” insurance. I guess I need typo insurance too.

  11. Victoria

    Mar 27 2013

    This is all about trust, isn’t it?

    We as consumers must spend the time to find someone knowledgeable enough in this area and trust them to act with our best interests at heart, or we MUST be prepared to educate ourselves (as we innately have our best interests at heart.)

    Financial education is not a top priority for many Canadians, and sadly, we find ourselves buying terrible products, expecting payouts and feeling duped, angry and frustrated when we realize what has happened.

    Like most other things – from cosmetics, to food, to finance – there is a tag on every product in this world saying “BUYER BEWARE.”

    It may seem like a hassle to do the extra homework or ask the difficult questions, but you know what’s even more of a hassle?

    Needing to work when you’re sick or dying.

    It’s wrong, but it’s reality, and we are the only ones who can make the changes necessary.

    If we all did our homework, realized how bad this product is and decided collectively to stop buying it, I’m pretty sure it would either improve or be taken off the “shelves” completely.

    Spread the word and help fellow human beings. If you were duped, others will be, too. Thank you, Ellen, for this article and for educating us.

  12. AM

    Oct 22 2013

    Hi Ellen, I have purchased the critical illness insurance and life insurance from my bank on my mortgage and line of credit. This was before I read your article.

    I am now being tested for ovarian cancer and I am concerned that the bank is not going to cover my loans if my tests come back positive.

    Do you have any suggestions for me so that I can be prepared to battle my bank if they don’t come through with the insurance on it?

    I am not ready for a battle, but if battle I must, then I will, but I don’t want to go in to it blind. Thanks so much.

  13. Brian Poncelet,CFP

    Dec 10 2013

    Am,

    A good start would be get the contract from the bank. As a general rule, the banks will underwrite you after a claim has been made.

    The biggest problem with bank coverage is if you leave the bank (TD), you just cancelled your coverage.

    The next problem is the coverage is not as good as if you had your own policy. Also, as you pay down your debts, the coverage goes down but not your premiums.

    Brian

  14. scott

    Jun 16 2014

    I was forced to buy insurance on a small loan in case of job loss or injury. It wasn’t a large sum of money.

    Then I was injured in a car accident and unable to work. The bank said we don’t want to claim it since we self-insure through CUMIS. This means you pay the bank and they pay out if they have to.

    I was jobless, injured and unable to work, but they closed my bank account and didn’t give me notice that they were doing it.

    They sent the papers after the fact. They claim they sent a letter but never did. They just sent them all at once after the deadline had passed. It said please pay by X date and it was mailed after that date.

    So then they sent it to collections. They say, “just pay what you can.” I told them screw it. I would rather take it to court.

    They broke the law by doing certain things and I have no problem bringing that to court. They went away afterward and never bugged me since.

    The debt shows up as written off, so in 2 years if they never contact me again, it goes poof.

    If they sue me, they won’t get anything because they can’t take what you don’t have. Plus if you’re not working, what are they going to to do? Take a wage you don’t have?

    The insurance is a big scam to get more money out of people. When they actually have to pay out, they just tell you to shove it so you have to hire a lawyer.

    Heck, if I knew that was what they were going to do, I would never have bought it. It was supposed to cover the balance until you were able to pay it back (when you got better).

    At this point, I feel like just saying let them sue. It will cost them $10,000 to sue and it’s more then what I owe. So what will they get back? They will get nothing.

  15. Insider

    Dec 29 2014

    I work for one of the major banks in Canada and offering insurance to people is part of my current responsibilities. I am not a huge fan of this part, but I am required to offer insurance with every credit application. I believe it’s part of our legal process.

    If a customer takes out a loan and is not offered any insurance at the time, some people may turn around and sue the bank for not advising them to protect the loan when circumstances become difficult.

    With every insurance policy, there are multiple conditions people need to be aware about. I saw a couple comments where people complained that after being approved for insurance, they were declined benefits upon the critical illness or death event. A typical clause in the policy is that if the insured individual has a pre-existing condition and qualifies for an automatic approval, no benefits will be paid if the death happens within the first 24 months of the effective coverage date.

    Unfortunately, most people aren’t aware of this clause. I bet many bank employees are not aware either. Rarely do people take time to read the insurance booklet and ask questions.

    Customers don’t realize that sales people at the bank only provide brief presentations of products and supply the rest of the information in the corresponding brochure. There is also usually a cancellation period that comes with each policy, so if customers don’t like certain terms they can cancel the policy with no penalties.

    I admit that some reps may apply more sales pressure than others, since there are incentives to selling insurance, but I am not going into ethical grounds here. I just wish that people paid a bit more attention to the contracts they enter.

    Thank you for reading.

  16. jennifer

    Jun 9 2015

    Hello, my parents had “life insurance” on their mortgage and did not know that it would stop once the age of 70 was reached. They were told only when my dad turned 70 and he died less than 3 months later.

    They had spent something like $35,000 on premiums over the years, only to be left empty handed. Is there any way my mother can go after the bank for not advising them of this age claus, which they didn’t know of until after the fact? She says she never even got any paperwork on it.

    The mortgage in question is with BMO and they live in Nova Scotia, Canada.

    Thank you for your advice.

  17. David Dudzic

    Oct 30 2015

    Hello Ellen.

    I have done a phone broadcast with Fanshawe College in London, Ontario explaining the difference between Bank Mortgage Insurance vs Life Insurance for students and alumni as well as conducting several seminars.

    If you ever want to connect and broadcast this subject – I would be interested in participating.

    Thank you for your consideration.

    David Dudzic
    Desjardins Financial
    519.494.9949

  18. Victoria

    Nov 4 2015

    I just want to clarify some information, as there is a lot of misunderstanding and misinformation out there regarding insurance.

    I have been in the insurance business for over 23 years and I can tell you not all insurance policies are created equal.

    First of all, I am not a fan of term insurance and most people do not understand that at the end of the term, the policy will automatically renew and premiums will be increased based on the insured’s age. I have seen premiums go from $33 up to $300 upon renewal.

    With a mortgage insurance policy, the premium will remain the same until the policy expiry. As the mortgage balance decreases, so does the insurance. The policy is designed this way so if you take out a mortgage in your 30s, your premium will not increase in your 40s (you are essentially paying premiums for a 30 year old for the lifetime of the policy), unlike term insurance.

    Secondly, people need to understand the insurance they are buying. NO insurance company will pay a claim without a full investigation, so if you think you should buy creditor insurance because there are no health questions, you should think again.

    If you have been diagnosed with cancer, then you won’t likely get life insurance anywhere. This doesn’t mean that if you are laid up in the hospital for 6 months because of a car accident, the insurance company will automatically deny your disability claim.

    So although you may not be able to claim for cancer, there is nothing preventing you from claiming (and being paid out) for another disability, such as one arising from a car accident. ALL disabilities are unique and need to be adjudicated as such.

    The reason why insurance companies may deny your claim and even rescind your policy is because of a material misrepresentation. Even though arthritis may have nothing to do with a heart attack, it is the insured’s responsibility to truthfully answer the health questions. Had the company known about the arthritis, it may have required more information or denied the disability insurance altogether.

    An insurance policy is a legally binding contract, issued in good faith. If an insured does not disclose everything, how can the insurance company make a decision to cover that individual? It really comes down to informed consumers.

    If you are not sure if the coverage is right for you, ask questions before you sign on the dotted line. Nobody has a crystal ball and we don’t know when we will pass away or become disabled. So please answer the health questions honestly.

    Also, all insurance companies I have ever worked for have a 2 year contestability clause (they have the right to verify health questions if presented with a claim within 2 years of the effective date). Any policies issued without health questions always have a pre-existing condition clause. This clause varies from company to company.

  19. Deborah

    Jan 15 2016

    Why should people have to prove they are qualified to activate the extra insurances they are coaxed into buying – ‘if they are smart and want to be safe’.

    Mine is BMO. The bank, of course, washes its hands of the matter. It is the insurance company I have to deal with for job loss.

    If that is the case, then why did I not have to deal with the insurance company in the first place?

    NEVER buy extra insurances through the bank, or at least through BMO.

    The Bank is threatening to cut up my card, which will harm my credit rating. And the insurance company is again stalling until the card is canceled and I will not longer qualify! Legalized white collar theft from banks!

    I am still waiting for their ‘rep’ to call me back about this.

  20. Brian Poncelet,CFP

    Mar 26 2016

    Here are some points to consider:

    The bank is beneficiary, not you.

    If you change mortgage companies, the bank cancels your coverage.

    Bank coverage goes down every year. Insurance price stays the same.

  21. Joe Blough

    Apr 30 2016

    Single Guy, no kids, dies.
    Surviving Family (mom, brothers, sisters) doesn’t necessarily know if Single Guy has a doctor, or who the doctor is.
    Bank gives Family a form, part of which are questions for Single Guy’s doctor (whom I don’t believe is specifically named). Can that part of the form go unfilled if the Family doesn’t know who Single Guy’s doctor was?

  22. Sharmaine

    May 4 2016

    I purchased a life insurance policy with TD Life Insurance in 2012. I thought I needed it at the time of purchase and after carefully consideration, I decided to cancel a few months later in 2012.

    My monthly premium was $16.47 a mont, which was directly taken from my chequing account. When I called and cancelled my policy, I noticed on my monthly statements that I was still being charged $16.47 and I only noticed this mid-2013.

    I went into my main branch and spoke to the manager. He explained that since I didn’t purchase the product in the branch, there wasn’t anything they could do, but he gave me a number to call.

    When I went home, I spoke to a customer care agent and was told my policy would be cancelled. Because I had called the previous year to cancel and it was not done, they offered me a 50% settlement. I took it because I was upset and not pleased with what happened, silly me.

    A letter was issued to me as well my account being credited. I thought this was the end of my frustrations and shortly afterward I moved.

    Let’s forward to April 2016. I have the time to go through my monthly statements once again (I’m normally busy with family and work). I noticed that I’ve been charged for the last three years for the amount of $16.47 each month.

    At this point, I’ve been a TD customer for almost 13 years and had no issues prior to purchasing my TD Life Insurance. I was fed up.

    I called TD Life Insurance Customer Relations and asked if they could see any notes on my account for my policy. The first agent I spoke to was able to cancel my policy (so he said) and offer me a settlement of $16.47.

    After speaking for minutes and pleading with him, I was offered $98.82 and a letter stating that my policy would be cancelled. I explained that I would not settle for this amount, since I called years ago and cancelled. Also, I had been a loyal TD customer for 13 years.

    He then read the notes on my account stating that I did call to cancel, but said it was my job to check my statements and six months was all he could offer me.

    I escalated my concern to the TD Life Insurance Ombudsan after getting nowhere with Customer Relations. I faxed a letter stating that I would like to be fully reimbursed, which would be about $560 over the past three years.

    I was told that the notes on my account were dated back to 2012, when I told a agent that I would like to cancel and I was given 50% reimbursement because it was not cancelled. Also, I was told a letter was not mailed to me, which means they’re calling me a liar indirectly.

    I was also told that I did call to have my policy cancelled in 2013, but the call was dropped and they did not proceed.

    “You did not call back, so we did not cancel, and you would have to be on the phone in order for us to do so. We will take 50% of the blame, but 50% of the onus is on you.”

    This is what I stayed on the phone to hear. I became irate. I’ve worked in Customer Service for almost 15 years now and nowhere are we taught to blame the customer. We are taught to be apologetic, empathetic and try to solve the problem.

    I will be cancelling my TD account when I get reimbursed. However, for the past couple of da, the lady hasn’t returned my call.

    Unsatisfied TD Customer

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