Mortgage Life Insurance in Canada

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Do you need mortgage life insurance in Canada?

Mortgage life insurance helps you protect your investment in your property. The death of the primary earner in the family can make it challenging to keep up with the bills. Most Canadians would have difficulty paying their mortgage and living expenses if their partner were to pass away. This insurance can put your mind and pocketbook at ease.

Coupled with home insurance it can help you protect your property and family’s future. It is an affordable solution to ensure your mortgage is covered.

Below we will explain mortgage life insurance, talk about how it works, who should get it, and answer questions about this specialized type of life insurance.

What is mortgage life insurance?

Mortgage life is a type of coverage for individuals who have a mortgage. It will eliminate or significantly reduce your mortgage if you pass away. The premium will be applied to your mortgage balance. This will make it easier for your family to remain in the home.

It is also referred to as mortgage protection life insurance or mortgage protection insurance. If you buy coverage from the bank, a premium will be added to your mortgage. It is a rather simple application process, which makes it attractive to many individuals. As a group insurance product, you can expect lower premiums compared to individual policies.

How does mortgage life insurance work?

The purpose of mortgage life plans is to protect your family if you pass. But it works differently than traditional life policies. Rather than receiving a specific premium upon payout, you receive less as time goes on.

Your overall payments are decided by the size of your mortgage. Your benefit is tied to how much you owe on your mortgage. So, as you reduce your mortgage balance, your benefit payout will decrease over time. Your monthly payments will remain the same. Some lenders offer a level-term option. With this policy, your payout does not decrease over time.

Plans allow you a 30-day period where you can review and choose to cancel. Your premium will be added to your mortgage. If you pass away, a lump sum payment will be applied to your outstanding mortgage loan.

Who needs a mortgage life insurance policy?

It is not for everyone. It is a suitable alternative for people who have issues getting approved for standard life plans because of an existing medical condition or illness. There is usually an easier approval process. Some people also choose to add this policy to bump up their total amount of coverage. Upon death, this will eliminate your mortgage and other life insurance benefits can be used for other financial means.

Pros and cons of mortgage life insurance

There are advantages and disadvantages to mortgage life products. Here are things to consider before you take out a policy:

Advantages:

Premiums are added to your mortgage
You can cancel anytime
Easier qualification requirements and application process
It can free up money from other policies
Ideal if you don’t qualify for term life insurance or other products

Disadvantages:

If you change mortgage providers, your coverage will expire
There is little plan flexibility
You must use payouts for your mortgage
Higher premiums. They can also fluctuate over time
Age limitations
Payouts decrease over time as you pay off your mortgage

What is the average cost of mortgage life insurance?

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Rates can vary anywhere from $25 to $300 per month depending on your situation.

The amount you will pay depends on:

The insurance provider
Your age when you get the policy
The amount owing on your mortgage
The rates at the time

You will pay less if you are younger when you take out the policy. For example, you’ll have a lower rate if you are 25 compared to 40 years old. You will also pay less if you have less owing on your mortgage. For example, you will pay less if you have $200,000 owing compared to $400,000 owing.

What is the difference between life insurance and mortgage life insurance?

There are stark differences between these two types of coverage. While the goal of both is to provide you with financial security, how they work is different.

With life insurance, it is typically issued by an insurer and your benefits will not change. The number will stay the same for the duration of the plan. With mortgage life plans, it can be issued by a bank and the payout decreases to be in alignment with what you owe on your mortgage.

Life insurance payouts are issued to the named beneficiary. They can do as they please with the money. With mortgage life insurance, the payout is issued to the financial institution that holds the mortgage. They will put the money toward the balancing owing.

Mortgage life insurance FAQs

Is mortgage life insurance mandatory in Canada?

No, it is not mandatory in Canada. It is an optional form of protection that you can add for extra financial protection.

Is mortgage life insurance worth it?

It can be worth it if you have issues getting approved for other life insurance products. It may also be worthwhile if you have a large mortgage, and you don’t want to pass this debt on to your dependants.

Can I cancel my mortgage life insurance?

Yes. You can cancel your plan at any time. You will receive a full refund if you cancel within the first 30 days.

What happens to life insurance when your mortgage is paid off?

Your plan will expire when your house is paid off. There is no longer a need for this type of protection.

Does life insurance pay off your mortgage?

Your plan will specifically be put toward covering your mortgage. Other life product payouts can be used for your mortgage and other expenses as you see fit.

Should I get life insurance on my mortgage?

It depends on your lifestyle, financial situation, and risk tolerance. Some people choose to get it for peace of mind. Others choose to get it out of necessity. Assess your situation, compare your options, and then decide if this is the right type of insurance for you.

Why is mortgage life insurance so expensive?

It is typically more expensive because it is not based on your health. You only need to supply limited information for approval. From the lender’s perspective, this is a risker type of insurance to issue, resulting in higher rates.

Who is eligible for mortgage life insurance?

There are minimal qualification requirements. You must be a Canadian resident between 18 and 64 years old. You must be listed as a borrower or co-borrower on the mortgage. Mortgage guarantors also qualify. Eligibility will vary by provider.

Is there an age limit on mortgage life insurance?

Your age plays a role in the type of product available. Applicants who are younger than 45 are commonly offered longer terms than those older than 45 years old. For example, if you are 35, you may be offered a 30-year term. If you are 55, you may be offered a 15-year term.

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