Mortgage life insurance is a type of coverage that will pay off the remainder of your mortgage if you die. This means that your loved ones don't have to worry about what will happen to the family home, nor do they have to stress over how to pay off the mortgage themselves.
This can be purchased when you're initially applying for and setting up your mortgage, or it can be added on later. It can be easy to confuse it with typical mortgage insurance, which is mandatory for certain buyers, but mortgage life insurance is actually a completely different product that isn't required.
Not everyone needs mortgage life insurance, but it can be tricky to decide if it's something you should have. Here, we take a deep dive into the details of this insurance product, weigh the pros and cons, provide alternative ideas, and offer all the info you need to make an informed decision.
Key Takeaways
- Mortgage life insurance will pay off the remainder of your mortgage if you pass away.
- Mortgage life insurance is NOT required in Canada.
- With decreasing term life insurance, the amount of coverage you have decreases alongside the balance of your mortgage as you pay it down.
- Level term insurance provides a fixed amount of coverage throughout the term of your mortgage.
- Personal life insurance is a valuable alternative to mortgage life insurance that is often cheaper and provides wider coverage.
Do you need mortgage life insurance?
It is not necessary in Canada for homeowners to get mortgage life insurance. Sometimes people get confused and think it is required, but what they may actually need is CMHC mortgage insurance – which is a completely different insurance product that's only required if you provide less than 20% for a down payment.
Most of the time, mortgage life insurance is offered to you (or even pushed on you) because the mortgage lenders can make a commission on the policies they sell. It's important to understand how the policies and premiums being offered compare to normal life insurance. Oftentimes, as was the case with me, you could get normal life insurance for cheaper – which happens to cover a lot more than just your mortgage.
So it's a good idea for all homeowners to look into personal life insurance of some kind. It can be a huge help for your loved ones after you pass on and they work through settling your estate.
The 2 types or mortgage life insurance
There are actually 2 different types of mortgage life insurance: decreasing term insurance and level term insurance. While they're very similar, optional mortgage insurance products, there are a few key differences to be aware of.
Decreasing term insurance
As its name suggests, decreasing term insurance is a form of mortgage life insurance where the size of the policy decreases in proportion to the balance of your mortgage. So as you pay down your mortgage, the amount of insurance coverage you have also goes down. It's designed to ensure that your mortgage is paid off if you, the policyholder, pass away.
This is actually the more popular of the 2 types of mortgage life insurance. It's also usually less expensive than more traditional term or permanent life insurance.
Level term insurance
Level term insurance provides a fixed amount of coverage throughout the term of your mortgage – it does not decrease along with your mortgage balance. This means that if you pass away, your mortgage will be covered and your beneficiaries will receive extra funds.
Likely because the payout is larger, the premiums for level term insurance are linked to your health and can therefore be rather high. If you first secure this insurance when your health is poor and rates are high, some providers may allow you to reapply later if/when your health has improved, so that you can take advantage of a lower rate.
Mortgage life insurance vs. life insurance
Mortgage life insurance may not be the best choice for every homeowner in every situation. Instead, some may find that term or permanent life insurance are better options that meet their needs.
There are 2 main types of life insurance: permanent and term. Permanent life insurance is exactly what it sounds like – your policy gives you lifelong coverage and never expires. Term life insurance, on the other hand, only provides coverage for a certain amount of time.
Here's a look at the main details and differences between these insurance options:
| Type | Premiums | Beneficiary | Medical exam |
|---|---|---|---|
| Decreasing term insurance (mortgage life insurance) | Will decrease as your mortgage balance decreases | The mortgage lender | Requires a few health-related questions |
| Level term insurance (mortgage life insurance) | Remain the same throughout the mortgage term | The individual(s) you choose | Requires a few health-related questions |
| Term life insurance (personal life insurance) | Remain the same throughout the term of your policy | The individual(s) you choose | Depends on the provider and policy |
| Permanent life insurance (personal life insurance) | Remain the same throughout the term of your policy | The individual(s) you choose | Typically required |
If you do think that life insurance is the better choice for you, PolicyMe Life Insurance is a fast, efficient, and excellent choice with some of the lowest rates in the country. With renewable and convertible terms that range from 10 to 100 years, these policies are available nationally across all provinces and territories.
You can learn more about PolicyMe Life Insurance here:
- 10 years
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PolicyMe is a modern life, health, and dental insurance option for Canadians between the ages of 18 and 75 (or older, if renewing). You'll get some of the cheapest life insurance premiums in the country, and it's all done 100% online for extra ease of access. Choose from terms between 10 to 30 years, or a 100 year term for essentially permanent coverage. PolicyMe term life insurance is convertible and renewable, so you don’t have to commit to a long term at first if you don’t want to.
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- Save 10% off your policy for the first year when you apply as a couple and get child coverage at no extra cost with the purchase of any policy
- National availability
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Advantages and disadvantages of mortgage life insurance
There are plenty of advantages and disadvantages, pros and cons, and various considerations to weigh before deciding whether or not to purchase mortgage life insurance. One of the largest points to consider is the cost, of course, but other details to look for include the ability to add riders, whether a medical exam is required, and whether or not you think you'll need to move.
Let's take a closer look at the benefits of mortgage life insurance:
- medical exams aren't usually required,
- you can add riders (add-ons that provide extra and/or different kinds of coverage),
- it doesn't affect the terms of your mortgage itself,
- it could cost less than personal life insurance,
- your family/heirs don't have to worry about your house if you die, and
- it provides significant peace of mind.
Of course, there are a few disadvantages of mortgage life insurance too. Here are a few cons to consider:
- it can feel like an unnecessary expense if you're in good health,
- the decreasing payout can be frustrating considering your premiums don't decrease,
- finding and comparing rates among providers can be tricky,
- you can't transfer when you move to a new home, even if you port your mortgage, and
- it costs more than personal term life insurance.
How and where to get mortgage life insurance
If you do decide to purchase mortgage life insurance, your first step should be to check with your mortgage lender and see what they can offer. Otherwise, many insurance companies, banks, and financial institutions offer it.
As previously mentioned, it can be tricky to find rates and compare them online, mostly because everyone's credit score and personal details are different and will therefore result in different rates. You may have to call or email the company to see what they have to offer for mortgage life insurance.
If you're looking for a quality mortgage brokerage, we recommend nesto. They have salaried mortgage advisors, which means you’ll receive unbiased advice regarding your mortgage and mortgage life insurance.
Do you have mortgage life insurance?
If you're at all concerned about what will happen to your home when you pass away, mortgage life insurance can provide invaluable peace of mind. It's certainly something you'll want to look into and discuss with your family, though regular life insurance may be a better option.
Do you already have mortgage life insurance? Or, if you've been considering purchasing this product, has the information provided here swayed you one way or another?
We'd love to hear about your thoughts and experiences on this topic. Feel free to leave us a note in the comments section below.
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What is mortgage life insurance?
Mortgage life insurance is a type of coverage designed to pay off your mortgage in the event of your death. Whether you choose decreasing term insurance or level term insurance, your home will be paid for.
Do I need life insurance for my mortgage?
No, mortgage life insurance isn't required in Canada. However, you may want to consider this or another type of life insurance product to ensure your loved ones aren't left needing to sell your home if you pass away.
Do I need mortgage insurance if I have life insurance?
If you have life insurance, you likely have coverage that will take care of your mortgage and more, so purchasing mortgage life insurance as well is unnecessary. To be safe, check your own policy to see what's covered.
Is mortgage insurance for the life of the loan?
Mortgage insurance is different from mortgage life insurance, and mortgage life insurance may or may not be for the entire term of the loan. This depends on whether you choose decreasing term insurance or level term insurance.
Is mortgage life insurance worth it?
Yes, mortgage life insurance can be worth it for some homeowners. If you don't already have life insurance, this product can provide peace of mind for you and your family. Personal life insurance is also a valuable option to consider.
What happens to life insurance when the mortgage is paid off?
This really depends on what type of life insurance you have. If your mortgage is paid off when you pass away, your beneficiaries will likely receive a lump sum payment, rather than part of it going towards the mortgage.
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