Mortgage Insurance
Understand the distinctions between mortgage insurance and life insurance to determine which option provides better security for your home and family. As your home is likely your most substantial asset, ensuring its protection in the event of unforeseen circumstances is crucial.
As a homeowner, you have two main options for protecting your mortgage:
- You can safeguard your mortgage by purchasing a life insurance policy from an insurance company.
- Alternatively, you can opt to buy mortgage insurance directly from a bank or mortgage lender.
One important aspect to understand is that life insurance can effectively provide mortgage protection for you and your family.
With life insurance, the proceeds typically go directly to your chosen beneficiaries, rather than to the bank or mortgage lender. Your beneficiaries are the individuals you designate to receive the benefit or payout from your policy in the event of your passing.
Life insurance policies, such as term life insurance, offer a death benefit, which is the sum of money disbursed to your beneficiaries following your passing. The precise amount they receive is contingent upon the specific policy you purchase.
Under a term life insurance policy, you’re provided coverage for a predetermined duration, typically ranging from 10 to 30 years. During the initial term, the premium—your monthly or annual insurance fee—is typically relatively low.
In the event of your passing while covered by a life insurance policy, your beneficiaries will receive a tax-free death benefit. This sum can be utilized to pay off the mortgage or for any other purpose they deem necessary. Thus, not only does your life insurance policy ensure mortgage protection, but it also provides your family with funds to address additional expenses previously reliant on your financial support.
Mortgage insurance operates by settling the remaining principal balance of your mortgage, up to a specified limit, in the event of your death.
Mortgage insurance channels the funds directly to the bank or lender to clear the mortgage balance, exclusively serving that purpose. Unlike life insurance, there are no additional funds available to cover other expenses, and no cash remains for your beneficiaries.
What sets life insurance apart from mortgage insurance?
Mortgage insurance exclusively addresses your outstanding mortgage balance. In the event of your passing, the death benefit is directed solely to the bank or mortgage lender, bypassing any allocation to your beneficiary.
However, with life insurance, you receive mortgage protection and additional benefits. Here’s how it functions: Every life insurance policy guarantees a tax-free death benefit to the beneficiary. This sum is not limited to mortgage repayment; instead, it can be utilized for various purposes. For instance, your beneficiary may use the funds to settle other debts, cover funeral expenses, or address various living expenses. Indeed, the funds from a life insurance policy can serve various needs, including:
- Settling any outstanding debts you may have
- Covering funeral expenses
- Meeting the costs of childcare
- Addressing other essential living expenses
Before making a decision between life insurance and mortgage insurance, it’s essential to consider several other key differences:
Who gets the money?
With life insurance, the funds are directed to your designated beneficiary or beneficiaries.
With mortgage insurance, however, the entirety of the funds is allocated to the lender. While purchasing mortgage insurance aims to maintain a stable housing situation for your family, its primary function is to safeguard the interests of the lender.
Does your coverage diminish as time progresses?
With a life insurance policy, you not only secure mortgage protection but also provide financial security for your beneficiaries or loved ones. Importantly, the coverage amount remains constant over time, even as you repay your mortgage.
On the other hand, with mortgage insurance from a lender, the premium remains consistent. However, the benefit diminishes as you gradually pay down your mortgage. Essentially, you’re paying the same premium for a declining death benefit. Once your mortgage is fully repaid, your coverage ceases, leaving no funds for your beneficiaries.
Can you move your policy?
Under a life insurance policy, your coverage remains intact even if you renegotiate or transfer your mortgage to a different company. There’s no need to reapply for coverage or demonstrate your continued insurability.
However, with mortgage insurance, your policy doesn’t seamlessly transition if you switch mortgage providers. Should you move your mortgage to another lender, you’ll be required to provide evidence of your ongoing good health to maintain coverage.
Which option offers greater flexibility: life insurance or mortgage insurance?
Life insurance offers greater flexibility compared to mortgage insurance. With life insurance, your beneficiaries have the flexibility to utilize the death benefit for various purposes beyond mortgage repayment. As the policy owner, you have the autonomy to determine the coverage amount and duration that best suit your needs, and the coverage remains constant unless adjusted by you.
In contrast, mortgage insurance obtained through a bank provides limited flexibility. The coverage is solely dedicated to protecting the outstanding balance on your mortgage, and you typically cannot modify the coverage amount.
Is a medical examination required for eligibility?
For life insurance, you might need to respond to medical inquiries or undergo a medical examination to secure approval for coverage. Once approved, the insurance company typically doesn’t request further medical details.
Contrarily, when applying for mortgage insurance through a bank or lender, you may encounter initial medical inquiries. However, if a claim arises, they may request additional medical information*. This process could potentially reveal conditions that could affect the claim payment.
(*Please be aware that mortgage insurance regulations regarding medical inquiries may differ based on the policies of individual banks or financial institutions. In certain instances, no further medical questions may be asked once your application has been approved.)
In conclusion, while both life insurance and mortgage insurance offer protection, life insurance provides greater flexibility and stability, often without the need for additional medical inquiries post-approval. However, the specific terms and requirements may vary depending on the insurance provider or financial institution, highlighting the importance of thorough research and understanding individual policy details before making a decision.
Your lenders policy is describe as a decreasing coverage amount. Even though your monthly payment remains the same, as your mortgage balance declines your benefits decrease too. This means in a later time you will be drastically over paying for your coverage.
When you go direct to the Insurance company both your payment and coverage amount stays level. Meaning even though your mortgage is decreasing the amount of benefit stays the same. In the event your spouse were to pass away, you would receive enough to pay off the mortgage and still have some TAX FREE money left over.
If you purchase coverage through your lender. It should not come without shock that the lender receives the payout on the insurance policy. You won’t have to pay for your mortgage but you also won’t collect any additional proceeds.
If you go direct to the Insurance company the benefits are paid out to the surviving beneficiary. This could mean there is additional money to help you through these tough times.
If you purchase coverage through your lender. It should not come without shock that the lender receives the payout on the insurance policy. You won’t have to pay for your mortgage but you also won’t collect any additional proceeds.
If you go direct to the Insurance company the benefits are paid out to the surviving beneficiary. This could mean there is additional money to help you through these tough times.
Policies purchased through your lender are non-transferable, meaning you will need to re-apply. Being older and potently in worse health means your coverage would cost more.
- Direct to the Insurance company your coverage is transferable. There is no need to re-apply.
- Price, what does it cost to have life insurance.
- Your lender coverage is typically 42% more expensive when comparing it to going direct to the insurance companies. See below table for comparison;
TD Canada Trust
Age | One Applicant | Two Applicants* |
|---|---|---|
35 | $70 | $105 |
40 | $105 | $157 |
45 | $150 | $225 |
50 | $220 | $330 |
* 20% Family Discount is applied
RBC
Age | One Applicant | Two Applicants* |
|---|---|---|
35 | $65 | $110 |
40 | $100 | $170 |
45 | $145 | $245 |
50 | $200 | $340 |
* 20% Family Discount is applied
Scotiabank
Age | One Applicant | Two Applicants* |
|---|---|---|
35 | $65 | $104 |
40 | $100 | $160 |
45 | $145 | $232 |
50 | $200 | $320 |
* 20% Family Discount is applied
Age | Male Applicant | One Applicant | Two Applicants* |
|---|---|---|---|
35 | $37 | $23 | $60 |
40 | $52 | $36 | $88 |
45 | $82 | $55 | $137 |
50 | $136 | $91 | $227 |
“By eliminating the middlemen and going straight to the insurance provider you can find a lower cost for better coverage”
For more information or to speak with a representative feel free to reach out as one of our non-commission advisors will help answer any questions you may have.
You can CLICK HERE to get an instant quote. Compare all the top insurance companies to see what the best price is, given your situation.
Its best to work with an insurance company that is going to give you the best policy for your own situation.
Feel free to speak with one of our representative and ask for our Easy Application Process.
When it comes to purchasing life insurance there is no one size fits all.
The coverage that will be best for you will be determined by your age, the amount of cover you are looking for, the amount of time you need the coverage, your nicotine use and potentially any other health concerns.
Before canceling your mortgage life insurance its best to get your new policy approved and in effect, first. This means the insurance company has approved your coverage and the first payment is made.
To make sure you are not having to pay for both coverage at the same time speak to one of our representatives for help.
You can CLICK HERE to get an instant quote. Compare all the top insurance companies to see what the best price is, given your situation.
Its best to work with an insurance company that is going to give you the best policy for your own situation.
Feel free to speak with one of our representative and ask for our Easy Application Process.
When it comes to purchasing life insurance there is no one size fits all.
The coverage that will be best for you will be determined by your age, the amount of cover you are looking for, the amount of time you need the coverage, your nicotine use and potentially any other health concerns.
Before canceling your mortgage life insurance its best to get your new policy approved and in effect, first. This means the insurance company has approved your coverage and the first payment is made.
To make sure you are not having to pay for both coverage at the same time speak to one of our representatives for help.