You’ve won the bidding war for your new home, signed the purchase agreement, and secured a mortgage. But just when you think all the hard work of buying a home is over, you realize that there’s something else you need: a safety net to protect your family from mortgage debt.

After all, you and your partner wanted the best home the two of you could afford. So even though you both have decent jobs, you have a mortgage that relies on both of your incomes to make the monthly payments. This means that if one of you dies before you’ve paid off the mortgage, the surviving partner won’t be able to afford the mortgage. And they’d have to sell the home.

The bank you got your mortgage from tells you that you can nip your mortgage debt anxiety right in the bud by buying mortgage life insurance — insurance that protects your family against mortgage debt if you pass away.

But how much does mortgage life insurance actually cost? And does it give you the best bang for your buck?

We tell you what you need to know about the cost of mortgage life insurance below.

What is mortgage life insurance?

Mortgage life insurance is essentially insurance for your mortgage. If you die before your mortgage is paid off, your insurer will pay the remaining balance of your mortgage to your mortgage provider.

This way, your family won’t have to worry about making the monthly mortgage payments without the help of your income. And they won’t find themselves in a situation where they can’t afford the mortgage payments and have to sell the home.

How much does mortgage life insurance cost?

Of course, if you die while holding a mortgage, your insurer doesn’t pay off your mortgage out of the goodness of their hearts. Instead, they use the money that you and other people have paid each month in premiums to cover the cost of the payout.

So just how much does mortgage life insurance cost?

Mortgage life insurance premiums vary depending on the provider you choose. But in general, your premiums will depend on your age when you apply for the policy, the initial insured amount of your mortgage, and the premium rate.

Unlike with standard life insurance, mortgage life insurance premiums aren’t based on your health. This could be a good thing if you have an existing medical condition that would make standard life insurance very expensive or difficult to get. But if you’re relatively healthy, which most people are, you won’t benefit from a lower premium rate the way you would if you were applying for standard life insurance. So for example, if you don’t smoke, you won’t get rewarded with lower premiums for being a lower risk to your insurer. That’s the catch for getting to skip out on peeing in a cup.

2020 mortgage life insurance rates

Mortgage life insurance rates change from year to year. But the table below gives you an example of mortgage life insurance premiums based on TD’s rates in 2020. This table shows the monthly mortgage life insurance rate based on age at the time of application and mortgage amount.

Age Mortgage Amount TD mortgage life insurance rate per month
30 $250,000 $25
$500,000 $50
$1,000,000 $100
35 $250,000 $35
$500,000 $70
$1,000,000 $140
40 $250,000 $52.50
$500,000 $105
$1,000,000 $210
45 $250,000 $75
$500,000 $150
$1,000,000 $300

As you can see, the mortgage life insurance rates increase as your age and mortgage amount increase. For example, if you’re 30 years old and your mortgage is $250,000, you’ll pay $25/month for mortgage life insurance.

However, if you’re 30 but have a $500,000 mortgage, you’ll pay $50/month. Similarly, if you have a $250,000 mortgage but you’re 40 years old, you’ll pay $52.50/month.

Mortgage life insurance vs. term life insurance rates

Okay, so now you have an idea of what mortgage life insurance costs. But how does this compare to the cost of the best alternative to mortgage life insurance: term life insurance? Which one gives you the best bang for your buck?

To answer this question, let’s take a look at the table below. It shows both TD’s monthly mortgage life insurance rates and Manulife’s monthly term life insurance rates based on age at the time of application and coverage amount. Note that the term life insurance rates are based on those for a 20-year policy for a male non-smoker.

Age Mortgage Amount TD mortgage life insurance rate per month Manulife term life insurance rate per month
30 $250,000 $25 $20
$500,000 $50 $34
$1,000,000 $100 $61
35 $250,000 $35 $22
$500,000 $70 $35
$1,000,000 $140 $65
40 $250,000 $52.50 $30
$500,000 $105 $50
$1,000,000 $210 $94
45 $250,000 $75 $47
$500,000 $150 $80
$1,000,000 $300 $153

When you look at the table, you’ll see that just like with mortgage life insurance, the monthly premiums for term life insurance increase as your age and coverage amount increase. But if you compare the mortgage life insurance and term life insurance rates in the same row, you’ll see that the term life insurance rates are lower.

In some cases, these differences are relatively small. For example, if you’re 30 years old and need $250,000 of coverage, you’ll pay $25/month for mortgage life insurance but $20/month for term life insurance. So over the course of a year, you’ll pay an extra $60 for mortgage life insurance. This works out to an extra $1200 over 20 years.

Although you aren’t dying to spend more money than you have to on life insurance, an extra $60/year really isn’t the end of the world. You’d probably spend more than that if you went out for dinner as a family one extra time each year.

In other cases, though, the differences in cost are much larger. For example, let’s say that you’re 40 years old and need $1,000,000 of coverage. In this case, you’ll pay $210/month for mortgage life insurance but only $94/month for term life insurance. This works out to an extra $1392 each year or an extra $27,840 over 20 years for mortgage life insurance. That’s huge! Think of the home renovations, years of tuition, or annual vacations you could pay for with that money.  

Why term life insurance is the better option

You don’t have to be a rocket scientist to realize that term life insurance is usually cheaper than mortgage life insurance. And sometimes, it’s cheaper by a massive amount.

But affordability isn’t the only reason why we typically recommend buying term life insurance instead of mortgage life insurance.

Here are some of the other advantages of term life insurance over mortgage life insurance:

  • the beneficiary is your family, not the bank
  • you can get coverage for debts and expenses other than your mortgage
  • your beneficiary receives your death benefit as a tax-free lump sum, which they can use in any way they’d like
  • your death benefit doesn’t decrease over the course of your policy term
  • you can keep the policy if you switch mortgage providers
  • your coverage can extend beyond the length of your mortgage term

In short, if you’re looking for broad coverage that’s flexible and affordable, pass on mortgage life insurance and buy a term life insurance policy instead.

Laura McKay

COO & Co-Founder

Laura brings 7 years of experience working in insurance & strategic operations as a management consultant at Oliver Wyman, after experiences at Manulife and Munich Re. In 2017, she launched a successful initiative for the World Economic Forum focused on innovation in insurance, working closely with insurers, tech pioneers, and policy-makers.

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