Mortgage life insurance shouldn’t be confused with home insurance in Canada. It covers all or part of your mortgage amount in the event of your passing. Mortgage life insurance is an insurance policy that will cover all or part of your mortgage amount in the event of your passing. Mortgages are loans secured by your home, meaning the bank can take your property if you stop making payments. Especially if you are a first time home buyer with a large mortgage, mortgage life insurance may provide you the peace of mind you need to sleep better at night, knowing that your family will be able to stay in your home in the event of a tragedy. Coverage is offered either directly through your mortgage lender or an affiliated life insurance company when you purchase a home and get a mortgage. You will usually get your first 30 days of coverage risk-free, meaning during this period you can cancel your policy and receive your money back. Some financial institutions even offer home buyers the ability to put more than 1 person on their mortgage life insurance policy, meaning you might be able to add a co-borrower, guarantor, or mortgage endorser to your policy.
Monthly premiums are directly influenced by how much you choose to be covered for. For example, if you have a mortgage of $300,000, your monthly premium to insure the full $300,000 mortgage will likely be twice the cost of insuring your mortgage for only $150,000.
|✔ Pros||✖ Cons|
Depending on your situation, mortgage life insurance may be something that fits your needs or may be an extra cost not worth the price. Mortgage life insurance is much easier to qualify for than individual life insurance, and usually your mortgage lender will ask a few questions before you qualify. This makes it much easier for people with poor health to get some form of life insurance coverage, which can be important to help give you peace of mind especially when getting a large mortgage amount.
A common question many home buyers have is: “Can I cancel my mortgage life insurance at any time?”. The answer is yes! One of the most appealing parts of mortgage life insurance is how you can cancel anytime and how most mortgage lenders will offer your money back after your first 30 days if you do cancel. This is so that you will be covered right away after getting a mortgage and will still have time to think over your mortgage life insurance policy. The other benefit of mortgage life insurance is the simplicity it offers. Instead of having to pay another monthly bill, mortgage lenders will add the cost directly to your monthly mortgage payment, making it an easier and simpler way to buy life insurance.
Generally, premiums can range between 10 cents to $1.65 for every $1000 in coverage you get depending on your age. Mortgage life insurance premiums start out less expensive for your coverage than other forms of life insurance, however over the long-term mortgage life insurance is more expensive because of the declining coverage. This is because as your mortgage amount is being paid down over-time, the amount left on your mortgage that will be covered in the policy will also decrease.
For example: you have just purchased an $800,000 house with a 20% ($160,000) down payment. Your mortgage amount is $640,000. You pay monthly mortgage life insurance premiums to cover your entire $640,000 mortgage in the event of a tragedy. 10 years later your amount owing is $440,000 as you have paid off some of your principal mortgage balance. You are now continuing to pay the same rate for mortgage life insurance, but the amount of coverage has dropped from being $640,000 initially, to now being only $440,000 as your mortgage amount has also dropped.
Finally, the biggest drawback of mortgage life insurance is the lack of flexibility in deciding where the money goes when your policy pays out. The money will automatically go towards your mortgage amount, leaving your beneficiaries without the option to decide where to spend the money. This may be very important, especially if there are other expenses such as tuition, credit card bills, living expenses, or funeral costs to cover.
Mortgage loan insurance and mortgage life insurance differ in what they cover, when it's required, when its paid, and who offers it:
|Mortgage Loan Insurance||Mortgage Life Insurance|
|What is it for?||To protect your lender against the risk of you defaulting on your mortgage.||To protect you and your family in the event of your passing, by covering all or some of your mortgage amount.|
|Is it Mandatory?||Yes, on mortgages with less than a 20% down payment.||No, it’s an optional add-on to your mortgage.|
|When are Premiums Paid?||Paid in a lump sum amount or included in your monthly mortgage payments.||Monthly, along with your mortgage payments.|
|Who Offers It?||The CMHC and other private mortgage insurers.||Your mortgage lender or an affiliated life insurance company.|
The biggest difference between mortgage life insurance and individual life insurance is flexibility. An Individual life insurance policy will provide your loved ones with a lump sum payout that they can choose how they spend, while mortgage life insurance payouts will automatically go towards the home's mortgage amount.
The other main difference is the policy length and coverage. Mortgage life insurance only will cover you for the time that you have your mortgage, meaning that once you pay off your mortgage, you won't receive any form of coverage in the event of death. This differs from term-life insurance and whole-life insurance, where you will be covered for as long as you have your policy.
Finally, mortgage life insurance is only offered through your mortgage lender or an affiliated insurance company. This means you can't shop around for a better rate, or move your policy over to an insurance company you have had a good experience with in the past. This also means that if you need or want coverage, you will be stuck paying the rate your mortgage lender or their affiliated insurance provider offers you.
|Mortgage Life Insurance||Individual Term-Life Insurance|
|How is it Paid Out?||Directly to your lender to cover your mortgage.||Directly to your beneficiaries to use how they see fit.|
|Policy Length||For the length of your mortgage or until you cancel your policy.||5 to 40 years, depending on your term length and age.|
|Where Can You Purchase?||Through your mortgage lender or an affiliated life insurance company.||Through any life insurance company or insurance broker.|
All 6 big banks in Canada have options for home buyers to get mortgage life insurance either directly or through an affiliated insurance company. The main difference between each bank however is: the maximum coverage you can apply for, the add-on types of coverage offered, and your monthly premiums.
RBC HomeProtector Insurance- Mortgage life insurance at The Royal Bank of Canada(RBC) covers up to $750,000 in mortgage amounts for borrowers. Monthly premiums will be locked-in based on how much coverage you want and your age when you apply. RBC offers you the ability to get a quote through their website in minutes for how much it will cost you to get mortgage loan insurance. RBC also offers the ability to add-on additional coverages, which include critical illness insurance and disability insurance.
TD Mortgage Life Insurance- Mortgage life insurance at TD Bank offers coverage for up to $500,000 on your mortgage amount. Monthly premiums range from 10 cents per month per $1000 in coverage for people aged 18-30, while progressively rising based on your age, all the way up to $1.64 per month for every $1000 in coverage for those aged 66 to 69. Your monthly insurance premiums are locked-in for the full term of your mortgage, but you can still cancel coverage anytime. TD also offers add-on coverage for critical illnesses, which can cover you for up to $500,000.
CIBC Mortgage Life Insurance- CIBC offers up to $750,000 in mortgage life insurance coverage to reduce or pay off in full your mortgage principal. Monthly premiums per $1000 in coverage are between 8 cents, and all the way up to $1.62 depending on your age and number of borrowers being covered. Monthly premiums at CIBC will be added directly to your mortgage payments, and will be adjusted if you change how frequently you pay your mortgage.
Scotia Mortgage Protection Insurance- Scotiabank offers up to $1,000,000 in coverage on your mortgage. Monthly premiums start at 11 cents per month for every $1000 in coverage for people aged 18-30 and progressively rise depending on your age, all the way up to $1.54 per month for every $1000 in coverage for people aged 66-69. Scotiabank also allows you to add other types of mortgage life insurance coverages to your policy, such as critical illness and disability insurance.
BMO Mortgage Protection Insurance- BMO offers up to $600,000 in mortgage life insurance coverage, and you can choose to cover between 50% and 100% of your mortgage balance up to this amount. You can get a quote on the BMO website for how much it will cost you in minutes. BMO allows either the main borrower on the mortgage or a co-borrower to get mortgage life insurance coverage.
National Bank Mortgage Loan Insurance- National Bank offers up to $1,000,000 in mortgage life insurance coverage for people aged 18 to 64. This coverage is offered for borrowers, co-borrowers, mortgage guarantors, and mortgage endorsers.