Your banker is not your friend! – Gail Vaz-oxlade
In my latest book, Money Rules, there’s a rule that says, “your banker is not your friend.” I’m not sure where we got the idea that our bankers are there to make sure we make the best decisions, but it simply isn’t true.
Your banker works for a money-making corporation. She has sales targets to meet. He feels the pressure from his manager to sell whatever is the flavour of the month.
Don’t believe me? Let’s talk a little about one of the bank’s favourite “add-on” products: creditor insurance.
Whether you’re taking a mortgage, signing up for a credit card or taking out a loan, your banker will probably offer you creditor insurance. You think you’re buying protection in case you become too sick — or too dead — to make your payments, so you check a few boxes and sign your acceptance. Your banker smiles.
You actually didn’t buy insurance. You bought the idea of insurance. Since the creditor insurance you’re paying the premiums on hasn’t yet been underwritten (that doesn’t happen until you try to make a claim), it can be denied later on. Sure you’ll get your premiums back, but that’s not what you’d planned on, is it?
The next time your banker offers you creditor insurance, just say no. You aren’t buying peace of mind.
If you believe life insurance for your mortgage is important to protect your family, then buy a private term insurance policy to cover the outstanding balance of your mortgage. You’ll be better off because:
- The term policy is underwritten when you apply. If you don’t qualify, you’ll know up front. If you do, there’ll be no ifs, ands or buts when you put in a claim.
- The policy pays out to your beneficiaries. Bank insurance pays out to the bank. Sure, you pay the premiums, but the bank collects. You’ll see why this is important in a minute.
- Your family can use the money any way it wishes. Let’s say you started with a mortgage of $250,000, so you bought enough insurance to cover that debt. Fifteen years later, you croak. Your mortgage has gone down to $150,000. Your family still gets the full $250,000, which it can use to pay off the mortgage and then some. Not so with bank insurance. Don’t be a sucker!
Gail Vaz-Oxlade’s latest book, Money Rules, is published by HarperCollins and will make you say, “Really? I didn’t know that!”
Visit her website at gailvazoxlade.com.