Is Mortgage Life Insurance Mandatory in Canada?

In simple terms, most of the time Mortgage Life Insurance is not mediatory. This is highly dependant on your lender as few lenders will make it mandatory in order for you to qualify for a specific type of loan.

What is mandatory is you sign off and acknowledge your decision. Most Mortgage Life Insurance applications require you to initial one of 2 areas acknowledging your decision to either purchase or waive the coverage. 

However, the coverage offered by the lender will not be the most affordable option, in most cases, you will be offered coverage that is 30-40% more expensive than other carriers on the market. This is why it would be best to shop the market and find the best price given your specific situation. 

Life Insurance becomes highly recommended when you consider what would happen if you (or your spouse) if they were to pass away unexpectedly. Many Canadians cannot afford their monthly expenses on only one income. So the options become fairly simple, purchase a life insurance product before its too late, or downsize to a lower lifestyle. 

Let’s take a look at the differences between mortgage life insurance and life insurance purchased directly through an insurance company.

Transferable Vs Non-Transferable

Life insurance purchased through a life insurance company is transferable. Meaning your policy is transferable between loans. You do not need to re-applying just because you are applying somewhere else for a mortgage. 

Mortgage Life Insurance purchased through the lender is non-transferable. When you change your mortgage you will need to re-apply for coverage. Because you are older, the coverage will be more expensive than having the original policy set up in the first play. 

Level vs Decreasing 

Life insurance purchased directly through an insurance company is level coverage. Meaning you will be paid the same amount whether you are 5 years into your mortgage or 15 years. Why clients prefer this is there is always money left over. Let’s say you purchased a $500,000 mortgage. And in the next 10 years, your mortgage is only $400,000. Your coverage will still be the original $500,000. You could pay off your mortgage and still have $100,000/ 

When you purchase through the lender. You are not covered the same. Their coverage is decreasing. Sticking with the same $500,000. That means you would not have to pay your mortgage, but you wouldn’t be able to have the additional coverage in place. 

Price 

Last but not least, price. Coverage purchased directly through an insurance company is on average 40% more affordable. This becomes a big deal when you see you are overpaying for worse coverage. 

For more on what coverage is right for you CLICK HERE to get a FREE Life Insurance quote.