DOGE has led President Donald Trump’s effort to slash the federal workforce and cut spending. Several programs for farmers, such as for local food purchasing and climate-smart farming, have been frozen or cut in the administration’s first 100 days.

Farmers rely heavily on loans to pay for operational expenses including seeds, fertilizers and pesticides, or to buy land. The USDA typically offers loans to farmers who have trouble accessing credit through traditional lending institutions.

The April 29 memo sent by Houston Bruck, deputy administrator for farm loan programs, said that the new policy requiring clearance from the Office of the Secretary and DOGE for some lending is in compliance with an executive order on government cost efficiency.

Under the policy, which went into effect on Wednesday, all loans and guarantees of $500,000 or more and to “formal entities” like corporations will need to be approved by the two offices, the memo said.

Direct farm loans made to farmers by the FSA have a borrowing cap of $600,000. Guaranteed farm loans, which are financed by commercial banks with FSA backing, are capped at $2.2 million (C$3.03 million).

“We recognize the potential impact that this effort may have on our customers, lending partners, and FSA staff, and are committed to ensuring minimal disruption to service delivery,” said USDA’s Farm Service Agency administrator Bill Beam in a note sent along with the memo.

USDA said such reviews do not cause undue delay and that most direct aid to individuals is exempt from the process.

“The USDA Efficiency Team reviews many loans, guarantees, and payments,” USDA said in a statement, adding that “the team does assess payments over $500k for fraud and national security concerns.”

The trade group American Bankers Association, and officials with the Farm Credit System did not immediately respond to requests for comment.

“With rising input costs and trade chaos already creating uncertainty for farmers, making it more difficult to access federal loans could mean the difference between survival and being forced to shut down,” said Democrat U.S. Senator Amy Klobuchar, the minority ranking member of the Senate’s agriculture committee. “I urge the administration to ensure the personal information of farmers is protected and that this doesn’t lead to unnecessary delays or denials for our farmers.”

The FSA services about eight to ten per cent of farms with loans, according to USDA data. In fiscal year 2023, the agency issued 22,600 farm loans worth about $4.7 billion (C$6.49 billion), according to agency data.

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“With the right support, qualified primary producers have the potential to continue to contribute to the resiliency, diversity and innovation of Canadian agriculture despite temporary financial disruptions in their operations,” said FCC Capital executive vice-president of investment in a news release.

Glengarry Farm Finance primarily works with farmers who can’t get loans from ordinary lenders due to temporary credit issues. It works with farmers in Ontario and Western Canada.

FCC promised up to $60 million to increase Glengarry’s lending capacity.

“This new partnership with FCC puts us in the unique position of being able to offer a more comprehensive set of financing solutions to give farmers the support they need to work their way back to bankability,” said Glengarry CEO Greg Kalil.

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The federal ag lender on Tuesday said it will offer an unsecured credit line of up to $500,000 with loan processing fees waived, “to help producers, agribusinesses and agri-food operations with their immediate cash flow needs.”

FCC said it’s making the offer to both new and existing customers who are “experiencing financial difficulties, including cash flow challenges, due to higher-than-average input costs and elevated interest rates.”

While the Bank of Canada has maintained its policy rate since January, FCC warned in a March outlook that “additional intervention” could still be required to get inflation to two per cent.

Elevated inflation and interest rates are expected to slow consumer spending and business investments, FCC said in March, adding that if the U.S. Federal Reserve continues raising its policy rate, that could lead to a lower Canadian dollar if the Bank of Canada extends its pause.

A global economic slowdown has also resulted in lower growth in Canadian ag and food export volume, FCC said at the time.

Cost pressures in the “current economic environment” are difficult to pass on, FCC said Tuesday, and that’s led to “tough financial circumstances for some operations.”

“While the current experiences of individual operations within the different agriculture and food sectors are varied, we hope those who identify with these challenges will use this credit line as an opportunity to work through their current position and build back stronger than before,” FCC chief operating officer Sophie Perreault said in a release.

FCC reiterated it can offer flexibility to customers who are going through “challenging business cycles and unpredictable circumstances” on a case-by-case basis, such as through flexible payment options, payment deferrals or credit lines.

For example, the lender said last Thursday it would consider additional short-term credit options, deferral of principal payments and/or other loan payment schedule amendments for customers in B.C.’s wine sector up against financial hardship following “prolonged cold temperatures” last winter that caused significant damage to wine grapevines.

FCC said May 16 it would also consider similar supports for maple syrup producers in Eastern Canada following an “unfavourable change in temperature this spring” that shortened the maple syrup harvest in most parts of the region.

“This limited harvest can cause financial challenges for farm operations – not to mention personal hardship and stress,” Manon Duguay, FCC’s vice-president of operations for Quebec and Atlantic Canada, said in a separate release at the time.

“We stand by our customers over the long term, helping them pursue opportunities and overcome challenges, and this year’s unfavourable temperature has certainly been challenging for many maple syrup business owners.” — Glacier FarmMedia Network

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The Canadian arm of Rabobank — an Amsterdam-based farmer co-operative lender, providing banking, leasing and real estate services in more than 38 countries — announced Tuesday it’s getting set to offer “financing, risk management and partnership solutions” to primary producers in this country.

For now, the company said, it plans to focus on a “core market” of the three Prairie provinces, served by a remote workforce rather than physical branch offices.

Rabobank’s Canadian arm has operated out of Toronto since 1997 and today has a staff of about 20 providing loans, asset-based financing, private placements, merger-and-acquisition services and risk management products among others.

It describes its Canadian business so far as “food and agribusiness industry-specific,” for wholesale clients across much of the value chain.

At the farm level, though, the Canadian arm’s work has until now been only indirectly, through “third-party vendor finance partnerships.” For example, Rabobank has provided financing on crop inputs to an estimated 12,000 farmers via Richardson Pioneer’s ag business centres on the Prairies.

The company said this week via email its decision to enter the farm lending business will have no impact on its offerings through third-party vendors such as Richardson at this time.

In a joint venture with Calgary-based Telus Agriculture, Rabobank in 2021 also took ownership of Minneapolis tech firm Conservis, whose software products gather and integrate farm-level data from platforms such as Climate FieldView, the John Deere Operations Center, Crop Data Management Systems and Rabo AgriFinance.

Since Rabobank’s arrival in Canada, “we’ve gained a deep understanding of the marketplace and how Rabobank can best serve Canada’s leading growers,” Paul Beiboer, Rabobank North America’s CEO, said in a release Tuesday.

Expanding its Canadian portfolio to include direct farm-level lending has already been an ongoing project for nearly three years, the company said Tuesday, noting it’s already met all national and provincial regulatory and licensing requirements.

Rabobank said it plans to offer “short- and long-term debt options” at the farm and ranch level. “We will be a one-stop shop for Canada’s agricultural term and operational lending needs, as well as other financial services and risk management products,” Marc Drouin, Rabobank Canada’s general manager, said in Tuesday’s release.

Rabobank has also already named Roxane Lieverse as its new head of Canada agricultural banking, to be based in Calgary. Lieverse, up until October, was director of Alberta agricultural banking with Scotiabank, and previously was a regional manager for National Bank of Canada.

Lieverse is also now building a “dedicated team of relationship managers” for the ag lending business, Rabobank said.

The company is now “onboarding several experienced and talented relationship managers,” she said via email, adding that it’s entering the market “with skilled bankers who truly understand agriculture and want to support industry growth.” Meanwhile, she said, farmers will be able to contact the company via its general email.

In Rabobank’s release, Lieverse said the company plans to “do business with our customers at their kitchen table (and) meet face-to-face with clients to listen to their needs and understand their operations.”

Rabobank’s approach, she said via email, will focus on a “partnership model” with a producer. Such producers, she said, “tend to take a longer-term, growth-based view of their operation and understand that they need a financing partner through the industry cycles.”

Setting Rabobank apart from other lenders in the same market, she said, is the bank’s “deep global research… which prospective customers will benefit from, as they navigate the global impact on their operation.”

In a separate interview this week with Rod Nickel of the Reuters news service, company officials said that out of the total Canadian farm lending market, currently dominated by Farm Credit Canada and the big six domestic banks, Rabobank aims to command a 10-15 per cent share within 15 years.

“The number of young farmers is actually growing and the country is on track to become the world’s second-largest food and agricultural products exporter,” Beiboer said in Tuesday’s release, describing Canada as “an attractive and logical market” for Rabobank to work with farmers and ranchers as well as its current corporate clients.

— Article updated Jan. 14, 2023 to include additional information from Roxane Lieverse of Rabobank.

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Alberta’s Agriculture Financial Services Corp. (AFSC) announced Thursday it had discontinued its Rural Business Loan Program effective immediately, so as to “concentrate its efforts on agricultural producers and agribusinesses.”

The decision means no new loan applications will be accepted under the program and anyone seeking a rural business loan would be referred to “other financial institutions within Alberta.”

Active applications received before April 1 will be considered and approved if they meet borrowing requirements and conditions, AFSC said.

Clients with existing Rural Business Loans, meanwhile, can still deal with their AFSC lending relationship manager on renewal and amendment options, the agency added.

The program, one of several AFSC launched in October 2018 in an expansion of its offerings, was meant to support investment within the province by “providing access to financing to enhance and contribute to Alberta’s economy.”

The Rural Business Loan Program was geared toward providing new or existing small- and medium-sized commercial and manufacturing businesses in rural communities with an “alternative” source of fixed-rate term loans, with customized terms and “competitive” rates. — Glacier FarmMedia Network

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Agriculture Minister Blaine Pedersen on Wednesday announced what the province billed as “a new rural service delivery model to modernize services provided to clients whose needs and expectations have changed.”

The new model, set to take effect April 1, will consist of 10 agricultural service centres, to be staffed by both the provincial ag department and Manitoba Agricultural Services Corp. (MASC), the Crown crop insurance and ag lending agency.

Another nine rural offices will house department staff but will not be open to the public, the province said in a release.

Another five offices, meanwhile, will be devoted to “integrated resource management” and two other resource development offices will focus on minerals and petroleum respectively.

The new “multichannel” service delivery model will also involve development of an online chat program from which clients will be able to get “real-time assistance” via smartphone, tablet, computer or toll-free phone. An exact launch date for that program wasn’t given in Wednesday’s release.

Each office will also have a “client-accessible kiosk” for access to such online services, the province said.

Affected offices

The new consolidated ag service centres are to handle MASC’s insurance, lending, farmland school tax rebate and wildlife damage compensation services, along with licensing and permit applications, and also to provide information on ag department programs.

Those 10 combined offices will be at Arborg, Brandon, Dauphin, Headingley, Killarney, Morden, Neepawa, Portage la Prairie, Steinbach and Swan River.

Other workspace for department employees will remain — but will not be open to the public — at Beausejour, Carberry, Carman, Melita, Minnedosa, Neepawa, Portage la Prairie, Roblin and Virden.

Department and MASC offices set to close entirely under the new model include:

• the combined agriculture and MASC offices at Altona, Hamiota, Morris, Somerset, St. Pierre Jolys and Teulon;
• agriculture offices at Ashern, Gladstone, Lundar, Pilot Mound, Russell, Souris, Ste. Rose du Lac and Vita;
• MASC offices at Birtle, Deloraine, Fisher Branch, Glenboro, Grandview, Shoal Lake and Souris; and
• a petroleum branch office at Waskada.

The department’s “integrated resource management” offices will be at Brandon, Gimli, Lac du Bonnet, The Pas and Thompson; the minerals service office will be at Flin Flon and the petroleum services office at Virden.

Wednesday’s announcement didn’t specify whether or where MASC would continue to offer bilingual services. Its two listed bilingual offices, at St. Pierre Jolys and Somerset, are both slated to close.

“Meeting the needs of our clients with professional knowledge, current research and data, connections to appropriate links, and timely, unbiased information has always been a priority for our department,” Pedersen said in Wednesday’s release.

“The array of services that will be provided online, by telephone or in person at agricultural service centres throughout the province will offer producers a convenient and client-focused means to access the programs and services that are available to them.”

Keystone Agricultural Producers, the province’s general farm group, had warned earlier this year that the province should carefully consider any cuts it might make to MASC services, as adjusters will still need to be able to assess claims in a timely manner.

“I need to make important decisions about whether to rip up a crop and re-seed,” KAP president Bill Campbell told the Manitoba Co-operator in May. “Most of the work will be done out of the district offices. There aren’t many adjusters going from Portage to Swan River.”

In a separate statement Thursday, Campbell said that while KAP “welcome(s) the option to access forms, applications and information online, the opportunity to speak face-to-face with specialists is essential. This will be more challenging for many producers, particularly in western Manitoba.”

KAP, he said, has been “assured that these measures will not impact staffing levels” but he reiterated the organization’s members “are concerned about ongoing access to staff and have noted this issue for some time.”

Following provincial health guidelines, all ag department and MASC offices have been closed to walk-in or other unscheduled visits for months already due to the COVID-19 pandemic. — Glacier FarmMedia Network

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BMO announced the new team approach Oct. 14, describing it as “a national team of agriculture banking specialists — team members with backgrounds in agriculture combined with technical finance expertise — with a deep understanding of local market challenges and opportunities.”

The ag-specialized team, BMO said, will “provide end-to-end support for agriculture and agribusiness clients across the country” and is “well positioned to provide comprehensive solutions for all types and scale of operation, including the bank’s digital and treasury payment capabilities.”

These offerings, BMO said, “have been built specifically for the agriculture sector to help clients obtain the banking they need, quickly and conveniently.”

BMO hears “time and again that our agriculture customers want to work with professionals and experts in their field who know their business,” Lynda Taylor, senior vice-president and national head, agriculture and agribusiness for BMO, said via email last week.

“The difference now is that their banker is solely focused on agriculture and agriculture clients,” she said, adding the team will also have its own analysts and credit managers so as to “align knowledge, experience and passion for the agriculture industry.”

The team’s leadership includes Taylor along with Ashley Salazar as national director of credit structuring, the latter being responsible for “managing the strategic direction and risk of the overall agricultural banking group.”

The national team approach, Taylor said, “is about us coming together to work as one team and sharing knowledge and experience.” That said, she added that BMO “has always been local and we will continue to be; no one knows agriculture better than the people living in the community who understand the sectors.”

Canada’s agriculture industry, BMO said in its release, is “evolving, with continual advancements in efficiency and sustainability influenced by changing market dynamics and the ongoing effects of COVID-19.”

Looking at the ag industry, Taylor said, “we find ourselves at somewhat of an inflection point. We are seeing a lot of advancements in the industry and now, with COVID, it’s worked to accelerate some of these changes.”

“Over the past two decades, productivity in the agriculture sector has increased five times faster than in the Canadian economy as a whole – and that trend shows little sign of letting up,” Aaron Goertzen, senior economist for BMO Capital Markets, said in the bank’s release.

Given the importance of the agrifood industry in Canada’s economy, accounting for over four per cent of last year’s gross domestic product, Taylor said BMO “recognize(s) an opportunity to invest more in agriculture experts and bring teams within the bank together to support this industry more effectively.”

The new ag group will also work with BMO’s retail, wealth, and capital markets operations “to support businesses in this segment with a full range of wealth and banking products and services,” the bank said. — Glacier FarmMedia Network

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The federal government on Monday announced a stay of default on loans coming due on or before April 30 under the Advance Payments Program (APP), among other measures it’s taking against the financial impacts of the COVID-19 pandemic.

The APP extensions, which affect up to $173 million in deferred loans, are meant to provide farmers with flexibility in managing cash flow against lower commodity prices or “reduced marketing opportunities,” the government said.

The deadlines for repayments of 2018 cash advances for grains, oilseeds and pulses, and for cattle and bison, are now reset to Sept. 30, 2020. The deadline on repayments on 2019 cash advances for flowers and potted plants has also been reset, to Oct. 31, 2020.

Also, farmers who still have interest-free APP loans outstanding will be able to apply for an additional $100,000 interest-free portion for 2020-21, the government said — as long as their total APP advances remain under the $1 million cap.

Farmers looking for more information are asked to contact their APP administrators.

APP administrators taking part in the stay include the Alberta Sugar Beet Growers, Alberta Wheat Commission, B.C. Breeder and Feeder Association, Canadian Canola Growers Association, Manitoba Corn Growers Association, Manitoba Livestock Cash Advance, Western Cash Advance Program, P.E.I. Federation of Agriculture and Agricultural Credit Corporation, the government said.

Lending capacity

The government on Monday also pledged $5 billion for an expansion to the “capital base” at Farm Credit Canada, to boost the “lending capacity” of the federal farm, agrifood and agribusiness lender.

Added lending capacity for FCC — whose loan portfolio today sits at over $38 billion — will provide “increased flexibility to farmers who face cashflow issues and to processors who are impacted by lost sales,” the government said.

FCC plans to “use its resources to find solutions that offer the best chance for recovery going forward so the industry emerges stronger,” the lender said in a separate release Monday.

“Initially, the focus will be on assisting the industry in addressing cash flow challenges so that businesses can remain focused on business-critical functions rather than worrying about how to access funds to keep operating through this difficult time.”

Ag sector support “will also take strong collaboration between banks, credit unions, FCC and other financial institutions,” FCC CEO Michael Hoffort said in the same release, adding the lender “will be working in partnership with other financial providers.”

Existing FCC customers with cash flow or other financial concerns are asked to contact the organization “to discuss alternatives” such as loan payment deferrals or other products.

“Each business’ financial situation is unique, so there may be a combination of options considered,” Hoffort said. “The sooner we can discuss potential challenges, the more options we have.”

‘First step’

Todd Lewis, president of the Agricultural Producers Association of Saskatchewan (APAS), welcomed Monday’s announcements as “a good first step to help spring seeding move forward.”

More must be done in coming weeks, he said, as Saskatchewan farmers’ net farm incomes have dropped by over 40 per cent in the last two years and the current pandemic is creating “unprecedented business instability” going into this production year.

Current business risk management (BRM) programs, he said, “do not provide us with an adequate financial backstop needed to manage these risks.”

Jeff Nielsen, chair of Grain Growers of Canada, reacted to the FCC announcement on Twitter, saying it’s “fair to say farmers do not want more debt” but rather need “BRM programs that work” and “assurances to our international customers that we can get our products to port.”

Nielsen also asked on Twitter whether there would also be federal relief for producers who instead have loans or lines of credit from commercial banks or local credit unions. — Glacier FarmMedia Network, with files from D.C. Fraser and Allan Dawson

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Farmland accounted for around 70 per cent of all farm assets in Canada in 2017, and in its 2017 Farmland Values Report Farm Credit Canada (FCC) says the average value of Canadian farmland increased 8.4 per cent in 2017, following gains of 7.9 per cent in 2016 and 10.1 per cent in 2015. Of the Prairie provinces Saskatchewan led the way with an average increase of 10.2 per cent (which was also the highest in the country), followed by Alberta at 7.3 per cent and Manitoba at five per cent.

It’s important to note that most of the increase in farmland values occurred in the first six months of 2017, before interest rates increased in the last six months of the year. The report suggests that recent increases in borrowing costs and expectations of further rate hikes could cool the farmland market off in 2018.

To buy or not to buy?

There is also a strong relationship between farming income and land values, said FCC’s chief agricultural economist, J.P Gervais in a recent FCC video on the topic. “From year to year you are going to see some deviations between the pace of increase of farmland values and the pace of increase of farm incomes but over a longer period of time these two should actually be moving up together,” he says.

What’s the best strategy in an area where land prices are moving up? That depends, says Gervais, on what stage the operation is at. “If you are an established, mature business not looking to expand, high farmland values solidify your balance sheet and may open up opportunities and possibilities down the road,” he says. “On the flip side, if you are a young producer or a business looking to expand, higher farmland values make it more challenging to purchase farmland.”

Historically it’s always been a good thing for producers to build some equity and own some of the land that they farm, but there are possibilities to complement the scale of their operation, for example by renting land to scale up the operation, lower their cost of production and be more competitive, adds Gervais.

Interest rates affect farmland values

Farmland values are also very sensitive to interest rates. In its 2017 Farm Assets and Debt Report, Farm Credit Canada estimated that an additional interest rate increase of one per cent (100 basis points) would decrease appreciation of farmland values by 1.5 per cent.

When interest rates are low it’s more affordable to buy land to expand. FCC gives the example in its Farmland Values Report of a $100,000 mortgage amortized over 10 years with an interest rate of 5.8 per cent. Monthly payments are roughly the same as for a $110,000 mortgage with the same terms and a rate of 3.7 per cent. Borrowing power is higher with low interest rates, but unless the rate is locked in, producers could find themselves in a squeeze to meet their debt obligations, especially if farm incomes fall.

Farmland values are also highly correlated with farm debt — they tend to rise or fall together. Between 2011 and 2016 farmland values increased by more than 50 per cent, while farm debt over the same period grew by 32 per cent. That growth was fuelled by strong commodity prices and low interest rates.

Following farmland values, farm debt was also up in 2017 (reaching a record $102 billion). The figures aren’t out for 2018 yet but many agricultural economists are predicting increases in both farmland values and total farm debt to be significantly lower than last year. That’s partly due to the volatility in agricultural markets because of trade, weather and other economic factors, but a big brake on the train is rising interest rates.

Canadian farmland prices

Farmland is generally less affordable. That’s a result of farmland values continuing to rise, but the effect of higher interest rates has taken a bite out of some farmers’ appetite to invest in more land too.

The Land-to-Revenue (LRR) ratio measures the relationship between land prices and farm income. LRR assesses the affordability of land through gross revenue from crops. It is calculated by dividing farmland value by farm crop receipts, on a per acre basis. There is no ideal LRR level. Crop mix and productivity, which varies by province, will influence the number.

The LRR increased in all Canadian provinces in 2017, to 10.3 in Manitoba, 7.2 in Saskatchewan and 20.8 in Alberta, well above the 10-year LRR averages in each province. Although land values are definitely at a historic high, low interest rates over the past 10 years have, among other factors, helped keep LRR figures lower and partly explains why 2017’s LRR numbers are higher than the 10-year average.

The outlook for farmland?

What’s the outlook for farmland value? Can the market support continued increases like we have seen over the past 10 years? Is the financial environment and the outlook for Canadian agriculture stable enough for the sector to grow and increase farm revenues?

No matter what stage a producer is at, understanding the farmland market requires them to step away from the annual numbers and look at it from an historical standpoint. Look at the trend in farmland values compared to the trend in gross income and try to fit this within the business’ cost structure. “That is really what is going to make it successful for the future,” says Gervais.

“Farmland is often the foundation over which producers and farm operations deploy their knowledge, expertise and other farm assets to grow their business,” says Gervais. Understanding how farmland fits within the business vision is critical to the success of the operation, so Gervais advises producers to make sure they have a strategic plan in place that sets the vision for the future.

Back to the future?

Farmer Lawrence McLachlan posted this photo below of his bank statements from 1980 on Twitter. The interest rates on his loans at that time ranged from 13 to 19 per cent.

McLachlan wrote: “Just in case anyone is wondering how fast things can go bad… This was my third year farming. Rates went up six points in four months.” McLachlan bought his first farm in 1979, after starting out with rented land in 1978. His interest rates peaked at a massive 21 per cent.

“The only reason I survived was because of the help from family and friends that believed in me. I will be forever grateful,” McLachlan wrote.

– Leeann Minogue, Grainews editor

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Banks love to sell mortgage life insurance. Statistics from the National Association of Insurance Commissioners, an organization of U.S. insurance regulators, shows that mortgage life insurance lenders pay claims amounting to 40 cents for every dollar they collect in premiums. Regular life insurance policies pay 90 cents of premium dollars in claims.

The concept behind mortgage life is not troublesome. The lender wants to be sure it is paid; life insurance is just a way of covering the risk of the borrower’s death before the last dollar is paid on the debt. The bank fills out a form, gets a signature, and adds the life insurance cost to the monthly mortgage payment.

The devil is in the details, goes the saying, and that is where mortgage life gets to be problematic. Mortgage life has one beneficiary, the lender, and, though the amount of the risk declines as the mortgage debt is paid down, the premium remains the same. Although the bank’s risk is decreasing, there is no transfer or spillover of benefit for anybody else — for example, the borrower’s heirs.

• More financial advice from Grainews: Young Manitoba farmers plan their lives

Mortgage life can be risky

Not only does mortgage life not provide benefits to anyone but the lender, it also tends to be evaluated or underwritten after a claim is made. That gives the insurer the opportunity to deny the claim, often on the basis that material facts were not disclosed. Critics of the underwrite-after-claim process say that questionnaires asking about pre-existing conditions are complex and confusing. Some questionnaires ask, “Do you have a condition which would affect your health but about which you have not seen a licensed medical practitioner?” Or the ultimate basket case question: “Is there any condition that you have not disclosed which, if disclosed, would affect your insurability?” Do you recall a throb near your liver last year? Maybe you should have had imaging studies. In after-the-fact underwriting, you ignore even faint hints of illness at your financial peril.

Have you ever smoked? If you did take a puff 20 years ago but did not become a committed smoker, you can explain that and probably get a non-smoker discount on a conventional term policy. Mortgage lenders tend not to give non-smoker discounts and are keen to deny coverage if they think they have been deceived.

This is not just theoretical. Here is a case reported by the Toronto Star in 2009: In 1979 a couple took out a mortgage. In 1999, they refinanced and added more debt. They disclosed on their application form that the husband had a history of diabetes, open heart surgery and back surgery. He could not get critical illness insurance, the bank’s mortgage officer told them, but he could get mortgage life. They took the mortgage life, refinanced again in 2002, filled out the forms, and advised the bank that nothing had changed. Then came a diagnosis for stomach cancer. The bank’s policy had a provision allowing a claim if a life-threatening illness is diagnosed. The bank denied the claim, saying coverage should not have been issued. When the case hit the press, the bank decided that on compassionate grounds and, perhaps to save face, they would pay the claim.

The moral of the story is to be very careful to report every illness when seeking life insurance, report anything that could be related to questions asked, and remember that lenders do their underwriting when you have a claim. That is a terrible time to find out that you should have shopped the policy and gotten coverage from a conventional insurance company that checked you out when you bought the policy. With conventional term coverage, the insurer has two years to decline coverage for any reason. After that, you are covered even if you fudged a question.

With conventional term coverage, you can make the lender the beneficiary, provide evidence of that to the lender, and, if you change lenders, change the beneficiary. You will need the approval of the insurance company, but it is routine and usually given. As the loan value declines, you can beef up what other potential heirs get.

The price of mortgage life

Mortgage life is expensive. For example, a 38-year old man and a 37-year old female can pay $140 per month for $500,000 of term coverage with a 20-year level premium from a major bank for its mortgage life insurance. The same couple could get 10-year term renewable and convertible coverage from a major life insurer through an independent agent for $41.54 per month. $500,000 of coverage for the same couple with 20-year level term would be $66.75. Details change from one quote to another, but the size of the gap indicates the advantage of shopping. Over 10 years, in the first case, the savings would be $11,815. In the second case, which matches the 20-year term of the lender’s insurance, the savings would be $17,580.

There is also a cost strategy you can use with conventional term coverage. When young, say in your 30s, you can get 10-year level term coverage for very little. The rate rises for the next 10 years and then higher for the next. But family income is likely to rise and — this is the critical point — as mortgages are paid down, your need for coverage also declines. This is insurance cost management. Add guaranteed renewability to the 10-year term policy and you have a low-cost, intelligent method of premium management, a base insurance plan for your family or farm, portability and control.

Non-bank insurance

There are other advantages to having your own term insurance to cover mortgage debt. If you change lenders, you take your coverage with you and — this is vital — there will be no gap in coverage. There are sad cases in which a mortgage borrower dies before coverage is in place in a mortgage transfer. That can’t happen if you have your own policy. Properly drafted, the policy and benefits provisions of your own policy would cover debt transfer in process.

Finally, and this is no small advantage, when you choose your own term policy, you can shop by price and have the policy tailored to your needs. Guaranteed renewability, guaranteed convertibility to whole ordinary life, various discounts for not smoking, good health, sometimes memberships in professional societies that get good insurance deals for members — all can help set the price of insurance and the bells and whistles on the policy. That is not possible with the one-size-fits-all life policies mortgage lenders offer. As well, with your own policy, you can extend coverage for other debts, even for a family loan. One policy can then cover your house, maybe some equipment purchased with loan and other obligations. That flexibility is valuable and, if you do it right, you can get more insurance, more appropriate coverage, and pay less.

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