Do I need to buy mortgage insurance?

No, mortgage insurance is not mandatory to qualify for your mortgage. But your lender making it seem like it is. That’s because it protects them—not you.

However, it is smart to consider protecting the outstanding balance of your mortgage. A term life insurance policy that matches your mortgage term is a cost-effective way to protect your mortgage debt.

Read more about if life insurance is mandatory to qualify for a mortgage.

Mortgage insurance alternatives

Term life insurance can provide the same security as traditional mortgage insurance. This alternative is referred to as mortgage protection insurance. It is usually a more affordable option and provides more flexible coverage.

How to cover a mortgage debt with life insurance

Protecting a mortgage with life insurance works by getting term life insurance that is in force during the amortization period of your mortgage.

Your beneficiaries are entitled to a tax-free death benefit that never reduces and can be applied to whatever they choose through mortgage protection insurance.

Private mortgage insurance, as it is sometimes called, offers the same security throughout the riskiest years of your mortgage loan, with several additional benefits not offered by conventional loan:

• You can get coverage well beyond the amount of your mortgage balance
• You get to pick your own beneficiary, instead of paying for insurance to protect the lender

Learn more about mortgage protection through term life insurance.

How much mortgage insurance do I need?

How much mortgage coverage you need depends on the value and cost of your home and several other facts. Unfortunately, you don’t get much of a choice if you go through your lender – the coverage amount is tied to the value and term of your mortgage loan.

However, life insurance allows you to cover your mortgage loan balance and many other financial needs, including:

• child care
• education costs
• your family’s future living expenses
• funeral expenses
• anything your beneficiaries wish

Our insurance calculator can help you find out exactly how much coverage you need.

Learn more about how much life insurance you need.

Why is mortgage insurance expensive?

Lender-provided mortgage insurance is expensive because there is no underwriting. Underwriting is the process an insurance company goes through to determine the appropriate fees for taking on the financial risk of your death.

Without this stringent evaluation process, they are more blindly taking on the financial risk of your policy paying out.

Read more about why mortgage insurance is so expensive.

Why is life insurance cheaper than mortgage insurance?

Term life insurance is cheaper than mortgage life insurance because it goes through full underwriting. If insuring you is less risky, then your monthly premiums are less expensive.

Learn more about the cost of life insurance.

How much does mortgage insurance cost?

The cost of mortgage insurance can be 2-4 times as much as a term life insurance policy. In the below table, you can see just how affordable term insurance can be.

Learn more about how to save money on mortgage insurance.

Frequently Asked Questions

Is mortgage insurance guaranteed?

No, mortgage insurance is not guaranteed. With lender-provided insurance coverage, the claim is evaluated at your death to see if there is any reason why it should not be paid out. For instance, if you had a health condition at the time of getting a policy from your lending institution and it was not disclosed, they will most likely not payout.

Alternatively, term life insurance offers guaranteed coverage. This means a much higher probability of a payout without any hassle.

Do mortgage insurance premiums reduce as you pay off your mortgage?

No, even as your mortgage loan reduces over the mortgage term, you still pay the same original insurance premium. Essentially, the policy’s value diminishes over time. It will never be more valuable than in the first few years of your mortgage, despite you paying the same mortgage insurance premium throughout.

How do I pay for mortgage insurance?

With traditional mortgage insurance provided by your bank or mortgage lender, the premiums are built into your monthly mortgage payment and tied exclusively to your mortgage contract. Although your mortgage and coverage decrease over time as you pay off your mortgage, your premiums will remain the same, if not increase.

But private mortgage insurance (mortgage protection insurance or term life insurance) from a third party is an insurance contract separate from your mortgage. This means you pay your monthly premiums separately from your mortgage payment. Additionally, if you move or change the terms of your mortgage, your policy stays in force. In other words, a private mortgage protection policy is portable.

Can I cancel my mortgage insurance?

Yes, you can cancel mortgage insurance. However, like with all insurance plans, we suggest you don’t cancel it unless you have alternative coverage ready to replace it.

What happens to my mortgage insurance if I sell my house?

If you sell your house, your lender-provided mortgage insurance is tied to the lender. When you sell your house, switch mortgage providers, or do anything else that ends your relationship with that particular lender, the corresponding mortgage insurance policy is cancelled.

Term insurance offers consistent protection throughout your housing situation. The agreement is separate from your property.

Does my beneficiary have to spend the benefit on the mortgage?

With the lender-provided option, you don’t have any say in the matter. Once the policy is activated, all transactions are handled by the suits at the bank or lender’s office until they deliver a deed to your family or estate.

Term life insurance instead gives your beneficiary the freedom to do what they want with the payout. They may want to pay off the mortgage or use the funds on other needs at that time. Ultimately, you are leaving them the choice.

Where do I get mortgage insurance?

You can only get mortgage insurance from the lender who provided your mortgage loan.

However, term insurance is available from several companies nationwide and the expert advisors at PolicyAdvisor have reviewed them all. We can help you find the best provider to protect your mortgage and make insurance part of your financial plan. Contact us below for advice on protecting your foray into the real estate market, or other needs like critical illness insurance or disability coverage.

Learn more about the best life insurance companies in Canada.

Nobody wants to think about their death, but the hard reality is that with ageing comes questions about those you may leave behind. This goes doubly so for couples. When you have a significant other, you both are invested in finding the best life insurance policy for couples. Finding coverage for the two of you provides peace of mind should anything happen to you both.

What are the benefits of taking one life insurance policy for couples?

Lower policy fees

As discussed above, combined and joint-life insurance policies allow a couple to take coverage under a single policy, which is a less expensive way of seeking life insurance as you pay a single policy fee.

For example: you and your partner recently bought a home and have taken out a joint mortgage to cover the cost. You secure your mortgage by taking a joint-first-to-die policy and avoid paying the two policy fees.

The joint coverage includes a single coverage amount; you both can decide this amount based on the outstanding mortgage and its amortization period. The benefit is paid out upon the death of the first insured person. The survivor can then use the money to pay off the mortgage loan.

A penny saved is a penny earned; why not save the extra policy fee while comfortably getting the protection you need? While the amount may seem nominal month-to-month, it can add up to hundreds, if not thousands of dollars saved over the course of the coverage period.

And, as mentioned earlier, you can determine separate coverage amounts and terms for each insured life with a combined policy. In this case, you can also ensure that coverage continues for the surviving spouse or partner if one passes away.

One contract to manage

Keeping track of paperwork and physical contracts on top of regular financial responsibilities can be a pain. With a single policy for a couple, only one contract is issued. You have the ease of reading, managing, and storing just one policy instead of two.

Conversion to permanent insurance

Typically, joint life insurance policies let the survivor convert their term policy into a permanent policy without medical underwriting upon the death of the other life insured as long as they are within the policy term. While not strictly necessary, it gives the surviving partner the option to cover themselves for their entire life. In the case of a multi-life policy, the conversion option is available on both the coverages within the unified contract.

When is the best time to apply for life insurance as a couple?

The best time to get a life insurance quote is always as soon as possible, as your rates will generally be less expensive in your earlier years. However, this is the easy answer. Couples have many trigger points that ad urgency to their life insurance needs. These can include moving in together, getting married, buying a home, getting a pet, or having children just to name a few.

Where can you get life insurance for couples?

While every couple’s situation and needs may vary, joint and combined policies are an excellent fit for those looking to save on money whilst getting the protection they require for their common needs.

Most of Canada’s best insurance companies offer various options for couples’ life insurance. Speak to our advisor today; they can discuss all the options at your disposal and help you choose the right policy and life insurance company for you and your partner’s needs.

Have you recently purchased a home or refinanced your mortgage? If so, you have probably opened your mailbox or email inbox to find several offers for mortgage insurance. Many people confuse mortgage insurance with other products, like mortgage default insurance. Before you make a choice, look at mortgage insurance vs life insurance for your protection needs.

There are a lot of good reasons to purchase life insurance in the first place, as anyone with young children or other dependents knows. Life insurance protects your family and loved ones if anything unexpected happens to you. But it’s not the first thing on new homeowners’ minds when thinking about protecting their new purchase.

What is mortgage default insurance?

Mortgage default insurance is a mandatory insurance policy required when the down payment for your newly purchased home is above 5% but less than 20% of the value of your home. This insurance is offered to protect the lender or financial institution, in case you as the borrower are unable to make the mortgage payments for any reason. In Canada, mortgage default insurance is currently offered by two entities: Genworth and Canada Mortgage and Housing Corporation (CMHC).

On the other hand, mortgage insurance is a product that you elect to purchase for a very specific reason. What is that you ask?

What is mortgage insurance?

Mortgage insurance is an insurance policy, generally offered by your lender, that pays off the mortgage should the borrower die, while the principal on the loan is still outstanding. A mortgage insurance policy (sometimes referred to as a mortgage life insurance policy) requires a fixed cost premium payment by the borrower to cover a reducing mortgage debt for the benefit of your lender until the mortgage balance is paid. With mortgage insurance, the lender is covered. However, it doesn’t fully protect you or your needs. Our experience as insurance professionals shows there are other products that do a much better job of protecting your mortgage.

Read our full review of the Best Mortgage Insurance Companies in Canada. 

Are there alternatives to mortgage insurance?

YES! As mentioned, mortgage life insurance entails a fixed cost payment that covers a diminishing mortgage debt for your financial institution until the mortgage is paid. The alternative to mortgage life insurance is mortgage protection through term life insurance. It can better protect your investment and the life you’re building for your loved ones.

What is mortgage protection insurance?

Mortgage protection insurance is an insurance policy offered by insurance companies that protects the borrower through a term life insurance product. It offers a lot more flexibility than traditional mortgage insurance. Term life insurance can be tailored in a way to make certain that families can pay off the mortgage balance and also provide coverage for many other needs, in case an income earner passes away. Typically, you can choose between a range of terms such as 10-, 15-, 20-, or 30-year term to closely match the length of time you have left to pay off the mortgage.

How much mortgage protection do I need?

You would generally buy at least enough mortgage protection coverage to pay the balance of your mortgage, which may be at least $160,000 (StatsCan) Mortgage protection through life insurance can make sure that a surviving spouse and children will be able to keep the family home, even if the homeowner dies unexpectedly.

Through term life insurance you have the option to consider a policy with a death benefit larger than your mortgage to cover other such obligations as your child’s education, other debts, and living expenses for survivors. Our insurance calculator can help you determine the amount of life insurance you need.

Want to learn even more about mortgage insurance vs life insurance? Read our Honest Guide To Mortgage Insurance or schedule a call with one of our licensed brokers to discuss your specific protection needs. Even better: get a free instant quote for mortgage protection with our online tool – you only have to answer a few basic questions to get a clear picture of how much it may cost to protect your mortgage.

If you are looking at houses, then you must also be looking how to save money on mortgage insurance. This is especially true when there are fees and costs, like mortgage default insurance, that are unavoidable depending on your down payment.

For instance, many potential homeowner are wondering if they qualify for the federal government’s First Time Home Buyer incentive. Through this program, they can potentially get a top up on the downpayment for their new home. Unfortunately, that new home will also have to include CMHC insurance rolled into the mortgage loan costs. Something you hope to avoid, if possible.

However, those looking to save some bucks do have options.

How to save money on mortgage insurance right now

BetterDwelling reports that big banks and lenders are already taking a disproportionate amount of your hard earned dollars. Do you want to give them even more for an insurance product when there are better and less expensive options available?

If you read our guide – like all discerning readers should – you know mortgage protection is much better served through term life insurance. Having this choice sounds great – we know – but what does it look like in real life?

Let’s look at an example. We want to insure a mortgage in the amount of $500,000 (the principal) over a term of 25 years. The chart below shows the cost of doing so through your favourite bank’s mortgage insurance versus choosing life insurance for 30- and 40-year old applicants.

Mortgage protection through term life insurance vs lender-provided mortgage insurance*

Wow. By shopping around instead of going with the product offered by your bank, you can save a ton of cash over 25 years, better spent on renos, furniture, and creating memories in your new home.

For the amateur mathematicians out there, if you were the 30-year old man, who decided to go for term life insurance, you would save $5,700 over the 25-year term, just in monthly cash outflow. And wait for it – if you were the 40-year old woman making the right insurance choice, you would save a whopping $18,400 by going with term life insurance over that 25-year term.

You could save tens of thousands of dollars by choosing mortgage protection through term life insurance.

Oh boy! We haven’t even factored in the cost of mortgage insurance premiums going up over time as you renew your mortgage rates. Or even still, that you could get even lower term life insurance rates if you were in good health, or that you could invest your monthly cash savings. You know where we could go with this!

Just like with mortgage rates, it pays to shop around for your mortgage insurance. Luckily we know of a place you can do that online, and within minutes. You shouldn’t need Scully and Mulder to find out the truth about mortgage protection. The lenders and banks have nowhere to hide.

*Bank mortgage premium reflects average of 4 major bank lenders with published rates.