Mortgage Insurance
What is Mortgage Life Insurance?
Mortgage life insurance is designed to pay off your remaining mortgage balance in the event of your death, ensuring your family can continue living in their home without financial worry.
But how does it differ from traditional life insurance? Do you really need mortgage life insurance? What does it cost? Let’s break it all down for you.
How Mortgage Life Insurance Works?
If you pass away with a mortgage balance, mortgage life insurance pays off the lender directly, leaving your family with a mortgage-free home. It offers peace of mind knowing your loved ones won’t face the financial burden of losing their home.
Unlike traditional life insurance, where you choose your beneficiary, with mortgage life insurance, the lender is always the beneficiary. Coverage decreases over time as you pay down your mortgage, but premiums often remain the same.
Some modern policies offer a “level death benefit,” ensuring the payout remains consistent, even when your mortgage debt falls below the coverage amount.
Mortgage Life Insurance vs. Term Life Insurance: Key Differences
| Feature | Mortgage Life Insurance | Term Life Insurance |
|---|---|---|
|
Beneficiary |
Always the lender |
You choose your beneficiaries |
|
Coverage |
Ends when the mortgage is paid off |
Fixed term, independent of mortgage |
|
Portability |
Not transferable if you switch lenders |
Stays unchanged, even if you move your mortgage |
|
Payout |
Pays off the remaining mortgage balance |
Pays a fixed amount to your beneficiaries |
|
Premiums |
Usually fixed, even as mortgage decreases |
May change upon policy renewal |
|
Disability Coverage |
Not included |
Separate disability insurance required |
Mortgage Life Insurance vs. Mortgage Default Insurance
| Feature | Mortgage Life Insurance | Mortgage Default Insurance |
|---|---|---|
|
Purpose |
Pays off the mortgage if you pass away |
Protects the lender if you default on the mortgage |
|
Mandatory? |
Optional |
Required with a down payment under 20% |
|
Transferability |
Not transferable to a new lender |
Stays unchanged for the policy’s term |
|
Premiums |
May fluctuate |
Fixed for the policy term |
How Much Does Mortgage Life Insurance Cost?
The cost of mortgage life insurance in Canada depends on factors such as:
- Mortgage size
- Age and health status
- Smoking habits
- Policy details
For example, a 35-year-old non-smoker with a $500,000 mortgage might pay between $20 to $50 per month. Keep in mind, though, that while coverage decreases as you pay down your mortgage, premiums often do not.
Do You Need Mortgage Life Insurance?
Mortgage life insurance is optional but can be a great alternative for those who don’t qualify for standard life insurance. It’s particularly useful if you want the reassurance that your family will have a place to live, no matter what happens.
Benefits of Mortgage Life Insurance
- Peace of Mind: Knowing your family won’t face mortgage payments after your passing.
- Simple Qualification: Easier to qualify for than traditional life insurance, especially if you have health concerns.
- Automatic Coverage: Premiums are often included in your mortgage payments, making it convenient and hassle-free.
- Tailored Protection: Coverage adjusts as your mortgage decreases, ensuring you only pay for what you need.
Drawbacks to Consider
- Decreasing Coverage: As your mortgage balance decreases, so does the policy payout, even though premiums often remain the same.
- Lender as Beneficiary: Your family doesn’t receive a cash payout; instead, the insurance directly pays the lender.
- Limited Portability: If you switch mortgage lenders, you may need to reapply for coverage, potentially at a higher premium.
How to Choose the Right Mortgage Life Insurance
- Check for Level Death Benefits: Some policies keep the payout the same even as your mortgage balance decreases.
- Assess Your Needs: Consider combining mortgage life insurance with a term life policy for broader financial protection.
- Review Periodically: As your financial situation changes, review your policy to ensure it still meets your needs.
FAQs on Mortgage Life Insurance in Canada
How Much Does Mortgage Life Insurance Cost?
How much is mortgage life insurance per month?
What happens to life insurance when the mortgage is paid?
Do I need mortgage insurance if I have life insurance?
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