Mortgage life insurance: not the only option for Canadians

Mortgage insurance is not the same as life insurance. This might sound confusing, but mortgage insurance and mortgage life insurance are different products with different purposes.

Mortgage insurance, also referred to as mortgage loan insurance or mortgage default insurance, is required by lenders if the down payment on your home is less than 20%.

Mortgage life insurance is an optional product that's used to protect your family from financial hardship if you pass away. If you pass away while a mortgage life insurance policy is active, your beneficiaries will be able to make a claim to get the mortgage paid off.

You might not be able to add mortgage life insurance later, depending on which company you get your mortgage with. This type of life insurance can typically only be applied when you get approved for a mortgage.

But this may be a blessing in disguise, because mortgage life insurance isn’t the ideal product for the average Canadian homeowner.

You can get a separate term life insurance policy after you’ve already gotten a mortgage – which is a much more affordable product (up to 75% cheaper!) and the payout is much more flexible. The death benefit can be used to cover the outstanding mortgage on the home or anything else your family might need, like childcare, education, income supplementation, etc.

Yes, there is an age limit for mortgage life insurance. Most often, you will find this maximum age to be below 70 years old, but that will depend on each company's particular policy.

To compare, term life insurance has an age limit of 75 years old. This means that once you turn 75 years old and beyond, you will no longer be eligible for term life coverage.

Ideally, life insurance policies should be taken out during the years in which your family is financially reliant on you. If you take out a mortgage life policy after retirement, it might not benefit your spouse or children as much as it would if you had taken it out while still working.

In Canada, mortgage life insurance is offered primarily by the big banks. The top mortgage life insurance providers are:

• TD Insurance
• ScotiaBank
• BMO
• RBC Insurance

But there are certainly more options for Canadians out there than these top four companies. It’s important to do research on each company’s different policies and rates to get the best life insurance possible.

Better yet, make sure to compare mortgage life insurance with other more affordable options for protecting your home, like term life insurance. PolicyMe has some of the best term life insurance rates in Canada – which are already more budget-friendly than most mortgage life insurance.

Generally, there is just one policyholder for mortgage life insurance. And further to this, you can’t name your spouse or partner as a beneficiary. With mortgage life insurance, the mortgage lender is the one that gets the death benefit, not your family.

But there are ways to make sure your home is covered in the event of your passing. You can get a term life insurance policy which would be paid out to your spouse or partner (or anyone else of your choosing).

This way, if something happens to you, they'll have enough money to pay off your mortgage and take care of any other debts or expenses you leave behind.

If you had a mortgage life insurance policy and the claim is denied, that means there's no payout. Essentially, you’d have paid all those premiums over the years for no benefit.

To make matters worse, you were probably paying more in premiums than if you had another type of life insurance (like term).

If your family’s claim is denied after reaching out to the insurance company, there's still hope. They can try an appeal, which will require providing more information about the case and why they feel entitled to receive the coverage. But anecdotally, these claim decisions can be really tricky to appeal, with limited success.