Mortgage loan insurance: Did I really pay 5 years of premiums for nothing?

Who is the beneficiary of your mortgage insurance policy? Check out our article that will make you think before you answer that important question.

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Mortgage loan insurance: Did I really pay 5 years of premiums for nothing?

Who is the beneficiary of your mortgage insurance policy? Check out our article that will make you think before you answer that important question.

In 2002, Nathalie Ricard and Richard Tremblay's dream becomes a reality: they buy their first home. They take out a loan jointly and sign a contract for a mortgage loan insurance policy (life and disability) with a large financial institution. They fill out the required insurance forms they are given. They are in good health.

The employee they talk to explains the benefits of mortgage loan insurance to them, and gives them an informational brochure. From the information the receive, Nathalie and Richard conclude that mortgage loan insurance is a good idea in their situation. They realize that their mortgage is the biggest expense in their budget, and that if Richard were to die or become disabled, it would be best if his new family wouldn't have to worry about the financial stress such a situation would cause.

After making their decision, the employee at the financial institution is very professional in helping them to fill out the insurance forms. In 2007, Richard suddenly dies from a heart attack. There is no problem with the claim. The institution pays the remaining balance owed on the loan and the house is entirely paid off. But Nathalie, even though she paid the insurance premiums and made the mortgage payment, isn't eligible to receive Richard's portion.

Nathalie and Richard were common-law partners, had no will, and hadn't written a contract as common-law partners. According to the civil code of Quebec, this situation is a question of legal succession. In this situation they were legally considered to be two single people. This means that each partner is the owner of the property that is in their name, whether they paid for it or not (www.justice.gouv.qc.ca).

Why did this happen to me?

Richard had no children, so Nathalie became a part-owner of the house, her in-laws inheriting ownership of Richard's portion (article 613 C.c.Q.). In this case, if Nathalie wants to own the house she and Richard bought together, she has to buy, at fair market value, the portion of ownership that belonged to her deceased partner. The main problem is that she doesn't earn nearly as much individually as the couple did jointly.

The two were good at making their mortgage payments, they made accelerated payments and used all their savings to pay down the loan. Nathalie noticed that the insurance money had only paid the remaining balance of the loan, yet the premium had not gone down…Nathalie wondered why she had deprived herself.

Richard's death had other consequences. She also had funeral costs to pay, she owed that to Richard. Then there was the cost of a notary fees to buy Richard's portion of the house from her in-laws. Another problem was that Richard's bank accounts had been frozen, and she wouldn't be entitled to any funds. Alone, Nathalie couldn't afford such heavy financial burdens, in addition such an expensive mortgage payment.

It was a heavy emotional blow. She concluded that she would have to sell her portion of the house as quickly as she could, potentially at a loss, all while trying to afford paying rent to her in-laws and trying to find new place to live.

If Richard would have had children, what would it have changed?

In the case that the deceased has a minor child, the child's guardian must manage their inheritance and justify their administration to the Public Curator. The curatorship may require that the portion of the house belonging to the child or children be sold at fair market value. This usually occurs when the children don't have enough money to pay costs related to the property, such as: property taxes, insurance payments, and maintenance expenses.

What if Richard had obtained a legal separation or de facto separation without being divorced?

In this case, Richard's previous partner would inherit Richard's portion of the property (not Nathalie).

What if Richard would have had children and had obtained a legal separation without being divorced?

In this case, a third of Richard's portion of the house would have gone to his previous partner (not to Nathalie) and his remaining two-thirds would have been split among his children (both those children from his previous spouse and those he had with Nathalie).

What if Richard had prepared a will?

This case is called a testamentary succession. In order to find the will, Nathalie should look through Richard's personal belongings, find out if Richard had a safe-deposit box in his name, or contact people or organisations that may have his will. She should also search the Registers of Testamentary Dispositions and Mandates of Quebec. This search is necessary to make sure that the will that she has found is the last one to be written. In fact, only the most recent will has any legal value.

What if Richard and Nathalie would have been in a civil union?

If Richard and Nathalie would have been in a civil union, the first step would be to start the process of partitioning the family patrimony, and the liquidation of the couple's property according to their matrimonial or civil union regime. After this, the succession can be adjusted to partition the deceased's estate according to his wishes.

The lending institution's insurer pays the remaining balance owed on the mortgage, the house is part of the family patrimony. Then the value of the family patrimony must be determined in order to calculate whether it's in deficit. If so, should the heirs accept or renounce inheritance of the estate?

Can you renounce your rights to a share of a family patrimony?

After the death of a spouse, the surviving partner can renounce some or all rights by notarial act.
Example

Richard is married, has no children, his parents have died and he has 3 brothers. Here's what happens if he dies without a will:
The family patrimony will first be partitioned and then the couple's property will be liquidated according to their matrimonial regime. Whatever remains constitutes Nathalie's succession. If the total succession were $120,000, it would partitioned in the following way:

  • 2/3 would go to Nathalie: 90,000$
  • 1/3 would go to Richard's 3 brothers: 10,000$ each

Nathalie must accept or renounce her rights of succession. Before making a decision, it's wise to wait for the publication of the closure of the inventory notice, because this publication will allow her to sufficiently weigh the pros and cons of either choice.

Usually someone will renounce their rights of succession if the deceased's total debts exceed the value of the assets left as inheritance.

A much simpler solution: An individual insurance policy

Whether you and your partner are in a civil union or married, with or without a will, you can easily name the beneficiary or beneficiaries of your choice when you first buy the policy. A life insurance policy in which a beneficiary has been specified is not part of the policyholder's succession. The goal of this article is to help you understand the difference between an individual insurance policy and a group insurance policy from a financial institution. This document is not targeting any specific bank, credit union, trust corporation, or mortgage lender. Rather, it simply discusses the general mortgage loan insurance situation at the time of publication.

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