Mortgage protection insurance or life insurance?

If you’re like most Canadians, your home will likely be the biggest purchase you’ll ever make — by far.

The multiple visits, negotiations and dreams of the life you’ll make in your new home are both stressful and exciting. You’re eager to get it all done and move in. Nevertheless, it’s a good idea to think through some decisions very carefully.

One of these is buying mortgage life insurance, which ensures that in the event of your death, the mortgage is paid off and your family can remain in their home. This type of insurance isn’t required if you make a down payment of 20% or more on a home. (Down payments below 20%, however, require insurance from Canada Mortgage and Housing Corporation (CMHC).)

Many lenders, often banks, will offer to sell you life insurance on your mortgage. However, term life insurance is another option to help ensure the mortgage is paid off, and it’s a good idea to weigh all the pros and cons.

A side-by-side comparison of mortgage life insurance vs term life insurance

 

Mortgage life insurance offered by lender

Term life insurance

Who benefits from your coverage?

The lender is the beneficiary and uses the life insurance proceeds to pay off the mortgage.

You name the beneficiaries, typically family members, who are free to use the money as they see fit.

When does the coverage expire…and what happens after?

 

 

The coverage ends when your mortgage is paid off. It may also be terminated if you reach the termination age specified in the policy, generally around age 70.

You choose the term of your policy, and can also choose to convert it to a permanent life policy at expiration.

What happens if I move my mortgage?

Insurance offered by a lender is not transferrable. If you move your mortgage to a new lender, you must resubmit for insurance. This may result in rate changes.

Your insurance stays unchanged for the term of your policy.

 

If I die…what then?

 

The coverage applies to the balance still owing on the mortgage. If you die and $10,000 remains on your mortgage, that’s the amount that will be paid.

Your beneficiaries get the full amount of your policy.

What if I get sick and can’t work to pay the mortgage payments?

In most cases, mortgage insurance from a lender offers optional disability insurance, which would cover your mortgage payments.

Disability is not covered by a life insurance plan.

Do my premiums change?

The premiums remain unchanged for the term of the mortgage.

Premiums could change at the end of the term, according to your age or health issues.

This list is by no means comprehensive, but should help you start thinking about factors to consider when making a decision about insurance.

You’ve invested a lot of time and effort into finding the right home. It makes sense to invest as much care into finding the right insurance to help protect it — and to help protect your family’s interests.