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Key takeaways:
The cost of mortgage life insurance varies based on a number of factors including:
As an example, we’ve pulled rates for TD’s mortgage coverage, breaking down the cost of mortgage life insurance based on the applicant’s age.
Even though there is no age limit for mortgage life insurance policies, rates are more expensive the older you are when you apply. Rates are also more expensive the bigger your mortgage is.
Mortgage life insurance tends to be much more expensive than standard life insurance rates. And the cost can add up: you can save up to $12,285 over a 25-year amortization period by going with term life insurance instead!
Not only is term usually cheaper, but the structure of a mortgage policy differs slightly too. The payout for mortgage policies is not fixed. So as you pay off your mortgage, you end up paying more premiums despite your payout decreasing.
Mortgage life insurance is so costly because it is underwritten after a claim is made, reports the Globe and Mail, so the company assumes everyone has the same level of "risk."
This is regardless of whether or not you smoke a pack of cigarettes a day or if you exercise daily. So if you are of average health, you’re not getting the most affordable coverage possible if you choose mortgage life insurance.
All this to say: you probably have better options out there. For instance, term life insurance offers more flexibility and is more affordable – for the same coverage (or more!).
One scenario in which mortgage life insurance can be a cheaper option is if you have a pre-existing condition. This is because all applicants are treated the same, which is different from how term life insurance works.
But a word of caution:
Before applying for mortgage life insurance, get a quote for a term policy first and see if you get rated and by how much.
This will give you a better idea of your options and whether mortgage life insurance is a good fit for your needs.
Having some form of life insurance coverage is definitely worth it if you’ve got a mortgage and financial dependents.
Mortgage life insurance isn't mandatory in Canada, but it's a valuable option to consider, especially if you’ve got pre-existing conditions that would make it difficult for you to get term coverage at a good price.
For the average Canadian family, we suggest:
No, mortgage loan insurance and mortgage life insurance are not the same things. Mortgage loan insurance policies are mandatory in Canada if you put down less than 20% on your home. It covers the mortgage lender in case you default on your mortgage.
On the other hand, mortgage life insurance policies are optional and help pay off your outstanding mortgage balance if you pass away. It's a way to protect your family from losing their home or facing financial hardships if something happens to you.
No, mortgage life insurance is not a waste of money. While paying off your mortgage if you pass away can provide peace of mind, it's essential to weigh the cost against the benefits.
You may find that a term life insurance policy is a more cost-effective way to protect your family's financial future. Make sure you weigh out your options and talk to a professional to determine what's right for you.
The length of time you pay for mortgage life insurance in Canada depends on the term of your policy. This could be anywhere from a few years to the entire length of your mortgage, depending on the policy you choose and the financial institution or insurance company you go with.
If you pass away before your mortgage life term ends, your policy will pay out the remaining balance of your mortgage to your designated beneficiary.
Meaning that your loved ones will not have to take on any mortgage debt. In many cases, choosing a term life insurance policy over a mortgage insurance policy may serve your and your family's needs better, as it covers more than just the mortgage, paying out a cash lump sum to your beneficiaries rather than to a financial institution.
Our sources:
Financial Services Commission of Ontario, Corporate Policy and Public Affairs Branch. (n.d.). What kind of mortgages are available? https://www.fsco.gov.on.ca/en/mortgage/Pages/kinds-of-mortgages.aspx
Johnson, G. (2017, May 23). Do you need mortgage insurance? The Globe and Mail. https://www.theglobeandmail.com/report-on-business/do-you-need-mortgage-insurance/article35064918/
Protection for your Mortgage. (2023). www.td.com. Retrieved March 21, 2023, from https://www.td.com/content/dam/tdct/document/pdf/personal-banking/td-592258-mort-new-en.pdf
Vecina, E. (2020, November 27). Sorry, Gen Z: The average first-time buyer in Canada is 36 years old. Canadian Mortgage Professional. https://www.mpamag.com/ca/news/general/sorry-gen-z-the-average-first-time-buyer-in-life insurance canada-is-36-years-old/286833
