Christopher Massa was diagnosed with lung cancer last October and died in February at age 60. His wife Angela hoped to stay in the house they owned in Stoney Creek, Ont.
Scotiabank offers life insurance coverage for mortgage customers under 65, but denied the claim for the couple’s $289,000 mortgage.
Massa answered a health question on his application incorrectly, the bank said. It paid the widow less than $5,000 as a refund of insurance premiums.
When Angela Massa decided to sell the house and buy something smaller, she had another nasty surprise.
“I can no longer afford to live in my home and now I find they want to charge me another $12,000 for breaking my mortgage,” she said.
Her husband had signed a document saying he had no pre-existing medical conditions. (She wasn’t with him when he filled out the application.)
In fact, Massa had been tested and treated for a liver problem. The bank learned of it after his death, when it asked his doctor for medical records.
Banks are known for providing fast approval of insurance coverage without doing a medical examination or checking medical records. This is known as post-claim underwriting.
“Approval is based on answering one health question,” Scotiabank says about its mortgage life insurance coverage.
“If you answer ‘No’ to this question and your mortgage is $500,000 or less, you are approved.”
The application lists more than 30 health conditions for which you may have been diagnosed, taken medication, received treatment or seen a physician or other health care professional within the past five years.
You have to say no to all the conditions to get approved right away. If you say yes, you may or may not get the insurance – and it will take longer.
Angela Massa wasn’t surprised that her husband overlooked the long-ago liver disease. But she didn’t know why he would say no to asthma, anxiety and depression (which he also had).
Massa has two sons, Adam and Shawn, who are both active on Twitter. They sent me a barrage of tweets about their mother’s plight and also contacted me through my website.
I forwarded everything to Sheena Findlay, a Scotiabank spokeswoman, who took two weeks to confirm the original decision.
“The insurer declined Mr. Massa’s claim because he was not eligible for insurance coverage based on his health condition,” said Findlay.
“We understand that this has caused Ms. Massa frustration and we thank her for her continued patience while we investigated this charge.”
What about the bank’s $12,000 demand to break the mortgage, which was only two years into a five-year term?
Scotiabank offered two solutions to Massa:
She could avoid a prepayment charge by “porting” or transferring her existing mortgage at an interest rate of 3.39 per cent to her new house, which closes on July 11.
She could get the prepayment charge lowered 20 per cent (or $2,400) if she preferred to get a mortgage at a lower rate. (The posted rate for a five-year closed mortgage is 3.09 per cent at Scotiabank’s website.)
Angela Massa turned down both options. She’s applied for a mortgage at another bank and she’ll swallow the $12,000 penalty.
“I don’t want to deal with Scotiabank any more. I don’t trust them,” she said.
“I’d like them to change the way they accept or deny the policy. They should have done their homework when we applied, so we could have gone somewhere else. They let us believe we had life insurance, only to find out we didn’t when it was too late.”
Banks make big profits on insurance attached to credit products. Their persistent sales efforts make some borrowers think they can’t get loans without taking the bank’s insurance.
You can buy mortgage life insurance elsewhere. Many insurance companies will do a health exam and check your medical records before agreeing to cover you.
If you accept a bank’s insurance, take your time answering the questions. Consult your doctor – even if you pay a fee – to confirm the information. The difference could be hundreds of thousands of dollars.
I’d like to see banks inform clients that they don’t usually check applications until after a claim. They should also warn of the consequences of filling out all-purpose applications too quickly. It’s the right thing to do.