If you have a mortgage, getting mortgage life insurance is something you might want to consider.
There are some good reasons to take out mortgage life insurance, but there are also some pros and cons to consider.
In this guide, we’ll look at what mortgage life insurance in Canada is, mortgage life insurance age limits, when to consider getting it, mortgage life insurance vs. life insurance, and more.
Key Takeaways
- Mortgage life insurance covers some or all of your outstanding mortgage should you pass away.
- You usually pay the premiums along with your mortgage payment each month.
- While it is not mandatory, it can give peace of mind to Canadians with mortgages.
What is Mortgage Life Insurance?
In life, it’s a good idea to expect the unexpected. Undesirable situations arise, and insurance is available to cover many of these situations – including if you pass away.
If you have a mortgage and die unexpectedly, you may want to know that your family is protected and covered for the remaining mortgage so they don’t struggle to make the payments or even lose the home.
This is what mortgage life insurance does.
This is not to be confused with mortgage default insurance, which protects the lender should you default. Instead, the main protection is for your beneficiaries, usually your family.
It is also slightly different from mortgage disability insurance, which provides protection should you become ill or suffer a disability and cannot pay your mortgage.
Mortgage life insurance can be especially useful for first-time home buyers with large mortgages who want peace of mind.
However, it is not mandatory. While many people decide to get it, you do not need it when taking out a mortgage.
Mortgage Life Insurance vs. Life Insurance
It’s easy to confuse mortgage life insurance with regular life insurance. However, they are two quite different products.
With life insurance, you pay a premium each month. If you die, a beneficiary receives a certain amount of money that is stated in the contract, and they can do what they want with it.
This makes individual life insurance more flexible because the lump sum payout can be used for anything. This may include the mortgage, but it could be something else entirely.
With mortgage life insurance, the payout can only be used for your remaining mortgage, which is paid directly to the lender.
Mortgage life insurance also only lasts for the period you have a mortgage. Once you have paid off your mortgage, you won’t receive any money from the insurer if you die.
With life insurance, you will remain covered as long as you have your policy in place.
Also, with mortgage life insurance, the premiums are usually fixed. However, the payout decreases over time as you pay off your mortgage. This is not the case with life insurance, where coverage remains constant.
Mortgage life insurance is often easier to get than life insurance because it may not require a medical exam. This can make it more accessible if you cannot qualify for term life insurance.
How Does Mortgage Life Insurance Work?
Mortgage life insurance is often provided directly via your mortgage lender or a separate life insurance company, and it is usually offered when you first get a mortgage.
The mortgage lender will sometimes ask you some questions to qualify. The amount of cover needed will be determined, and this will affect the premiums.
You will often pay the premium along with your monthly mortgage payment, which makes it simple to manage. You pay the premium each month until the mortgage is paid off or until you cancel.
If you die while paying for the insurance, the payout will go directly to the lender to pay off the mortgage.
How Much Does Mortgage Life Insurance Cost?
The premium for mortgage life insurance varies depending on the insurance provider, the size of your mortgage, and your age. Depending on these factors, you might pay anything from $0.10 to $1.00 or more for every $1,000 in coverage you require.
But be aware that the coverage will go down over the years. So, even though you pay the same rate, you will receive less coverage.
Mortgage Life Insurance Age Limits
Most lenders will set a maximum age limit for people who want to take out this type of insurance.
For example, TD provides mortgage life insurance for people up to 69, but other lenders may have lower age limits. Rates are often more expensive if you apply for this type of mortgage when you are older.
Pros and Cons of Mortgage Life Insurance
Pros
- It’s easier to qualify for coverage compared to individual life insurance.
- Ability to cancel your policy when you want.
- Convenient if you pay together with your monthly mortgage payment.
Cons
- The amount of coverage diminishes over time as you pay off your mortgage.
- The payout can only be used for the mortgage, making it less flexible.
- It’s more expensive over time compared to life insurance.
Do I Need Mortgage Insurance if I Have Life Insurance?
This depends on your situation, but you may want to get both.
If you already have a life insurance policy, it may provide enough cover for your family to pay off the remaining mortgage and even have some left over. It also provides them with the flexibility to choose.
In this situation, you may be happy to stick with your life insurance policy because you know that your partner or family at least has the option of paying off the mortgage.
It also depends on how much of the mortgage remains to pay off. If you have already paid off most of your mortgage, you may not want to get mortgage life insurance if you have a good life insurance policy.
If you have neither type of insurance and are trying to decide which to get, get some quotes from lenders and work out the costs.
Remember that the mortgage life insurance payout goes down over time, while you continue to get a fixed amount with life insurance.
You may want to get mortgage life insurance instead of regular life insurance when you cannot qualify for life insurance due to a health condition.
Is Mortgage Life Insurance Worth It?
Is mortgage insurance worth it in Canada? It can be worth it if it provides peace of mind.
If you do not have life insurance coverage and want to know that your loved ones will not be burdened with paying off the mortgage or even losing the property, it can be a very good idea.
But always explore your options carefully. You may find that individual life insurance is a better option for you. It may be more affordable, and you may prefer its extra flexibility.
Take a closer look at the options, consider the pros and cons, and decide which is right for you and your family.
FAQs
Mortgage life insurance is often more expensive than regular life insurance in the long term because the payout size diminishes over time as you pay off your mortgage.
With life insurance, claimants receive a lump sum payment that they can use for any purpose. With mortgage life insurance, the payment goes directly to pay off all or part of the mortgage.
Mortgage life insurance lasts until the mortgage is paid off or the insured person cancels the insurance.
It depends entirely on your circumstances, and both term and whole life insurance can be suitable depending on your situation.
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