Lessons in Life Insurance

An important part of estate planning is insurance, primarily life insurance.  Aside from general life insurance, consideration should be given to insuring ongoing obligations, primarily mortgage debt.

Unfortunately, the matter of insuring mortgage debt often only arises when the mortgage documentation is to be signed and little consideration is given to it by the mortgagor in advance.  Whether life insurance of a mortgage is worthwhile will depend on individual circumstances and the amount of insurance a person may already carry.  However, the issue should be addressed prior to meeting with the lender so that the pros and cons have been explored and a decision made.  The failure to do so can have significant impact as was noted in the Saskatchewan Court of Queen’s Bench case of Bautz v.  Advantage Credit Union.  In that case, the Court considered whether life insurance had in fact been applied for by the mortgagor when the mortgage was taken.  Of course, this only became an issue because a co-mortgagor subsequently died.  While the surviving spouse gave evidence that her husband had applied for life insurance on the mortgage and claimed that the credit union had failed to process the application, her action failed.  The lack of documentation in the spouse’s possession, combined with there being no application for life insurance in the credit union’s file (there was an application for disability insurance), lead the Court to the conclusion that no such application had been made.

The somewhat obvious lesson is that insuring debt obligations should be given thorough consideration and, as with all estate planning documentation, the application and/or contract of insurance should be safely retained.

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