What I do with MPP and why; it is 100% NOT about generating income!
This will be the first in a series of posts around this topic in which I will try and explain how MPP is more than a cursory document to be initialed and signed, it is a series of opportunities for many clients that themselves would at first not see the potential benefits. I myself am one such case study, that story is coming in a few weeks.
The MPP programs primary purpose is to ensure that clients, and their families, are fully protected in the event of an accident or health issue. It presents the independent broker a clear opportunity to practice what we preach; Engage an Expert! i.e. yourself and potentially your Certified Financial Planner referral partner.
But the path to that referral should not be an abrupt one. The conversation about the unique opportunities within the MPP offerings is a vital one to take a few extra minutes to have with each client. So lets address all the opportunities for the client to accept coverage, then we can talk referral options.
Never allow your clients to assume they know what you are about to discuss, and avoid making assumptions yourself. Go through the process in the same level of detail with each and every client. Especially friends and family as they are often the ones we do a less than thorough job with.
Even if the compensation for this product were Zero I would not change a thing about how I present it to clients.
MPP is not about the Broker, it is about the client.
This product and the conversations that I have with my clients around it are all about what makes sense for the specific client and their unique circumstances. Depending on their age, health, mortgage size, state of employment, and a variety of other factors the MPP product may well be the very best thing for them, in some cases it may only be a temporary solution. In nearly every case there is an opportunity for the client of some sort.
I offer clients the same opening statement;
‘This is the page that refers to the mortgage insurance which I am obligated to offer you, and you are 100% in no way obligated to take.
That said, please hear me out on the topic as there are some surprising opportunities for many clients.’
Lets address the life insurance to start with.
The first example (more to follow in coming weeks) will be a client in their twenties. The MPP premiums are extremely low for clients starting out at this age, and they benefit from the ‘forever young’ feature ensuring their premiums remain low as the clients age. For my client below it was a pretty sharp deal, even when compared to the cost of stand alone term insurance which although more portable should there be a sale and no subsequent purchase, lacks a few other bells and whistles.
The #1 Point to make out of the gates, is that your client has coverage immediately. This is a huge factor for a single income family, firming up a purchase with a large deposit and a long closing date. If anything were to happen to the main applicant in the interim that deposit could be at risk. How will the non working family members complete the purchase and make the payments?
The instant coverage, combined with the 60 days PREMIUM REFUND period allows them time to investigate other options while being covered in the meantime, potentially at no cost.
Lets look at an example of a twenty-something that would clearly be well advised to opt in the for the coverage.
A 26 yr old single male with no dependents. No worries about life insurance right? Perhaps. However this client purchased with 5% down, and that 5% was gifted from a single parent. There is a larger conversation to be had here.
The cost of the insurance in this sort of example is only $7.00 per month per 100K of coverage. Understandably every dollar matters to a young first time buyer, so to do their parents and their parents dollars though, which is the heart of this story.
This client has just paid a Mortgage Insurance premium that has eaten up 2.75% of the 5% initial equity in the property, if something were to happen to this client and a Realtor were retained to dispose of the property the remaining 2.25% equity will not be enough to cover even those basic costs, let alone the potential prepayment penalty on the mortgage. ****many first time buyers in the Vancouver market are forced into 5yr fixed mortgages which can have aggressive penalties as discussed in previous posts.
The individual could be leaving family behind with not only the obvious emotional devastation financial havoc as well.
- $387,000 purchase price
- -$375,000 Mortgage
- $12,000 remaining Equity.
A year later the worst happens and the parent(s) left behind must deal with the property.
Perhaps the market has dipped 2%, the home is listed and sold for 379,000;
- -$6,600.00 carrying costs ($2,200 per month) 3 months waiting for a sale to complete.
- -$17,562.50 Realtor Fee
- -$11,250 in prepayment penalty
- -$2,500.00 in misc legal and moving/disposal fees
This is nearly $38,000 in total costs to dispose of a property with less than $12,000 equity.
- An Approx $26,000.00 shortfall
Perhaps the client suggests that their estate can simply go into foreclosure.
Perhaps, unless Mom or Dad co-signed the mortgage. Then aside from being burdened with the payments to keep their own credit from being wiped out they also have a potential shortfall of $26,000 to deal with.
For a meager $26.80 per month the client could have instead left a paid off asset worth nearly $400,000.00 which could in turn generate monthly revenue for the remaining family.
Perhaps the Parent(s) would, given the option, cover the up front cost of the insurance themselves – simply to avoid this entire potentially devastating situation.
Life insurance as part of a comprehensive strategy around the co-signed mortgage is a conversation that it is your responsibility as an Expert Broker to have. It may not be a binding obligation, strictly speaking, for a Broker to present this in detail to their clients, but this is something that any Expert would themselves feel to be a fiduciary responsibility to their client(s) to address
Do not allow your client to drive the direction of the conversation on MPP. They may have their preconceived notions, as we all often do. Protection from preconceived notions is what we all benefit from. It is unlikely that a client will have given any of these factors and variables deep thought, if any. They are often wrapped up in the excitement of buying their first home and a bit overwhelmed.
Have your past clients missed out on this opportunity? You can still go back and have this conversation with them too. The option to purchase MPP coverage, or to refer the client to your independent CFP still exists. For further questions or Clarity contact your MPP representative directly.
In fact I personally just addressed this on two of my own mortgages last week.