What is the Best Mortgage Life Insurance for 2023?
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You did it! You purchased your brand new dream home in the Ontario countryside, and you just cannot wait to move in and start making your house a home. During the excitement, you pause to think about what steps you need to take to be sure your beautiful new home is fully protected – you have insurance in place in the event of fire or flooding. But what happens to your mortgage if something happens to you?
Many homeowners face the same question; if you were not around, could your family continue to pay for the mortgage?
Mortgage protection insurance may be just what you need to be sure that your loved ones are protected in the event of a death. It also may be a good option if you do not qualify for traditional life insurance or desire additional protection.
What is mortgage protection life insurance?
Mortgage life insurance, also known as mortgage protection insurance, is a policy that pays off a mortgage in the event of the death of the borrower. The terms are used interchangeably in this article.
It is a product offered by many life insurance companies and banks. It is essentially a term life insurance that equals the mortgage’s length. Under a typical term life insurance policy, you may choose your beneficiary. Mortgage life insurance policies are a little different. The beneficiary is always the lender, who will be paid the remaining balance of your mortgage.
That means your family only benefits indirectly. Rather than money, this policy leaves them a paid-off home and place to live.
Imagine you owe $150,000 on your mortgage when you pass away, the mortgage protection insurance policy will pay off the balance. The policy will pay off that remaining mortgage. The home will now be mortgage-free, but your family will have no say in how that money is spent (the insurer pays it directly to the lender).
One of the downsides of mortgage life insurance is that it provides a declining payout. As time goes by, you chip away at the balance of your mortgage through monthly payments. These decrease the potential payout. With mortgage insurance, your overall coverage decreases, but your premiums do not necessarily follow. Some providers now offer “level death benefit” so the payout remains the same, even when the mortgage debt dips below the value of the coverage amount.
What is the difference between mortgage life insurance and mortgage default insurance?
Mortgage life insurance and mortgage default insurance sound like similar products. They are easy to confuse. Mortgage default insurance may be required without a 20% downpayment, while mortgage life insurance is entirely optional. Refer to the chart below to compare the two and see if mortgage life insurance is worth it for you.
| Type of Insurance | Mortgage life insurance | Mortgage Default Insurance |
|---|---|---|
| Who is the beneficiary of the policy? | The lender is the beneficiary and uses the insurance to pay off the mortgage in the event of your death. | The lender is the beneficiary in the event that you default on your mortgage. |
| Is it mandatory? | Coverage is not mandatory in Canada. | Coverage is mandatory if your down payment is less than 20% |
| What happens if I move my mortgage? | Mortgage insurance is not transferable. If you move your mortgage to a new lender, you must resubmit for insurance. This may result in premium increases. | Your insurance stays unchanged for the entire term of your policy. |
| Do premiums increase? | Premiums are subject to fluctuation. | Premiums will remain the same. |
| Is sales tax applicable? | Sales tax is not applicable. | Sales tax is applicable. |
Good to know
Mortgage default insurance, which is sometimes referred to as CMHC insurance, protects the lender and is mandatory without a 20% downpayment. See our mortgage default insurance guide to learn more.
How much does mortgage protection insurance cost?
The cost of your mortgage insurance will depend on the amount of your mortgage. Depending on your age, premiums range from 10 cents to $1.65 for every $1,000 in coverage. However, because you pay down your mortgage amount over time, the amount left on your mortgage that will be covered in the policy will also decrease.
If you were to purchase a $600,000 house with a 15% ($90,000) down payment, this means a mortgage of $510,000. If you purchase mortgage life insurance premiums you would pay them on that $510,000 amount for the life of the mortgage. If 10 years later, you have paid down your mortgage to $310,000, you would still have the same premium for mortgage life insurance. The amount of coverage has dropped from $510,000 to only $310,000 as your mortgage amount has decreased.
Need a quote? Just use the comparison tool at the top of this page to get and compare prices on mortgage protection insurance
What does mortgage protection insurance cover?
A mortgage life insurance policy covers mortgage debts and associated costs. These policies do not pay out unless a borrower dies while there is still a balance on the mortgage. The beneficiary is the mortgage lender, but it provides a paid-off home for the borrower’s family.
Mortgage protection insurance is an indirect way of protecting one’s family when compared to a traditional life insurance policy on which they would be the direct beneficiary.
Let's take an example. Michel from Ontario has been turned down for life insurance due to his chronic asthma, but he wants to make sure that his boyfriend will be able to live in their house if something happens to him. As he is not able to take out traditional term life insurance, mortgage life insurance could be a good fit for him.
Good to know
If you're not sure whether life insurance or mortgage life insurance is right for you, we've got you covered in this life vs mortgage life insurance comparison guide.
How much mortgage insurance do I need?
For a mortgage life policy, an insurer will require you to purchase enough mortgage insurance to cover the cost of your mortgage. For example, if you purchase a $750,000 home and pass away during the life of the loan, this would pay off the entire remaining balance on the mortgage. Without full coverage, you would potentially have less coverage than what is owed on the home.
How to find the best mortgage life insurance?
As with all kinds of insurance, the way to find the best deal is to shop around, read the small print and find a policy that suits your specific needs. Mortgage life insurance premiums can vary between $1 and $20 a year.
Good to know
Remember that though these prices seem small, the amount you pay in premiums will not change over time even though the amount of coverage they purchase decreases as you pay off your mortgage.
The best way to find the best mortgage life insurance deal is by using the online comparison tool at the top of this page. You can add the details of your specific situation and compare leading providers.
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What is the difference between mortgage life insurance and life insurance?
Mortgage life insurance and life insurance sound similar so it is easy to confuse the two products. However, there are many important differences between each type of policy. See our chart that breaks down the main differences to make sure you are purchasing the right plan for you.
| Type of insurance | Mortgage protection/mortgage life insurance | Term life insurance |
|---|---|---|
| Who is the beneficiary of the policy? | The lender is the beneficiary and uses the insurance to pay off the mortgage. | You designate beneficiaries when you purchase the policy. They may use the money however they see fit, including to pay off the remaining mortgage. |
| Does the coverage expire? | Your coverage will end when your mortgage is paid off. | You pick the term of your policy. It is unrelated to the length of any mortgage. |
| What happens if I move my mortgage? | Mortgage insurance is not transferable. If you move your mortgage to a new lender, you must resubmit for insurance. This may result in premium increases. | Your insurance stays unchanged for the entire term of your policy. |
| What happens if you pass away? | The coverage will pay off whatever is left on the balance of your mortgage. If you pass away and still owe $50,000, then the insurance will cover that amount. | Your beneficiaries get the full amount of your policy. |
| What if I get sick and can’t work to pay the mortgage payments? | A mortgage life insurance plan will not cover the payments. This kind of coverage is offered through disability insurance available privately or through an employer. | Disability is not covered by a life insurance plan. A death will need to occur to trigger a payout. |
| Do my premiums change? | The premiums remain unchanged for the term of the mortgage even though you continue to pay down your mortgage. | Premiums may change if you decide to renew your policy at the end of a term (according to your age or new health issues). |
Good to know
Have you been turned down for term life insurance? Mortgage life insurance may be a good alternative for you. It is less difficult to purchase than term life insurance if you have underlying health conditions. It may not even require a medical exam.
Who sells mortgage life insurance?
Mortgage life insurance is typically sold by either your lender as an add-on to your mortgage or by a separate insurance provider. Remember that mortgage life insurance is not mandatory and you should always closely read the terms and exclusions to make sure that a policy is serving your needs first and not those of the seller.
Let's take a look at some of the policies provided by Canada's big names.
| Provider | Policy name | Max benefit | Exclusions (result in no payout) |
|---|---|---|---|
| Canada Life | Mortgage Life Insurance | $500,000 |
|
| CIBC | Life Insurance for Mortgages | $750,000 |
|
| RBC | HomeProtector Mortgage Insurance | $750,000 |
|
| Sun Life | Life and Disability Insurance | $750,000 |
|
| TD | TD Mortgage Protection | $1 million |
|
Canada Life: Mortgage Life Insurance
Canada Life offers life insurance on your mortgage to all borrowers, co-borrowers and guarantors aged between 18 and 64, and who are residents of Canada. The policy covers the outstanding debt on a mortgage if the policyholder dies unexpectedly, up to a limit of $500,000. Canada Life may require a health assessment in these circumstances:
- If you have experienced serious illness within the last 2 years
- If have a history of drug or alcohol abuse
- If you have a history of depression or other psychiatric issues
- If you have any immune diseases
The formula for working out the monthly premium amount is the amount of your mortgage multiplied by the applicable premium rate, divided by 1,000 and with additional taxes added on.
The premium rate is set in relation to your age and smoker status. The rate can range between 11 cents to $1.64 for a smoker and 7 cents to 88 cents for a non-smoker.
The life insurance benefit can be calculated with the following formula. The amount of mortgage you are insured for, divided by the mortgage loan amount, multiplied by the outstanding mortgage balance at the date of death.
For example: if you had a $600,000 mortgage. Canada Life's mortgage life policy insures you up to a limit of $500,000. Let's say the outstanding balance a the time of death is $400,000. The calculation would go: 500 000 divided by 600,000 equals 0.83 x 400,000 equals $333,333.
CIBC: Life Insurance for Mortgages
CIBC has a higher benefit limit of $750,000. It also requires that policy buyers must be aged between the age of 18 and 64 and must be residents in Canada. One additional stipulation notes that the policy will not pay out if the holder dies in the commission of a crime (meaning this is not the right mortgage protection for bank robbers).
CIBC's premium rates are slightly higher than Canada Life's ranging from 8 cents for a non-smoker in their twenties to $1.62 for a non-smoker in their sixties. The premium amount is worked out using the same formula:
Note: members of the Canadian armed forces are exempt from the minimum residency requirement of 183 days per year that applies to other applicants.
RBC: HomeProtector Mortgage Insurance
The Royal Bank of Canada offers a premium rate of between 10 cents and $1.63 for non-smokers. RBC uses the following formula to calculate your monthly payments:
If you are taking out a joint policy then the premium rate will be calculated using the older partner's age. RBC also offers critical illness and disability insurance policies that specifically protect your mortgage. These will pay out if sickness or accident causing income loss prevent you from being to repay your mortgage.
Sun Life: Life and Disability Insurance
Sun Life offers mortgage protection to an upper limit of $750,000. It also offers critical illness and disability insurance protection on insurances. Sun Life offers a premium rate of 10 cents to $1.13. You may be able to renegotiate your premium rate if you can pay a lump sum payment of $5,000 or more to your mortgage lender. You can calculate the premium payments you must make monthly with the following formula:
Sun Life will not cover the death of a policyholder from war or civil unrest unless the policyholder is a serving member of the Canadian Armed Forces.
TD: Mortgage Protection
TD offers a higher death benefit limit than its competitors of $1 million. Consequently, its premium rates are also higher, between 13 cents and $1.66. The cost of monthly premiums can be found using the following formula:
A claim must be made within three years of death or the coverage may not pay out. You may only take out one mortgage life insurance policy per mortgage. Deaths caused by intoxication by drugs or alcohol or suicide are not eligible for a payout.
Watch out!
Most mortgage life insurance policies automatically end the day the purchaser turns 70
Need a quote? Try the comparison tool at the top of this page. Get a quick, anonymous quote on mortgage protection insurance now.
Are there other ways of protecting a mortgage?
For most Canadians, your home is your largest asset. Fortunately, there are multiple ways to protect it. It is wise to protect your ability to continue to pay your mortgage each month. What will happen if you are severely injured and cannot work? Or what about your family and other bills that you have, how will those be taken care of in the event of your death? While mortgage life insurance will pay off the remaining balance on your home, there are other forms of insurance to protect not only your mortgage but also basic monthly income:
- Traditional life insurance pays out a beneficiary of your choosing in the event you pass away unexpectedly. It lets them continue to pay bills and daily living expenses including mortgage payments.
- Critical Illness insurance pays out in the event that you are diagnosed with a severe illness and are unable to work.
- Disability insurance is similar to critical illness insurance. It pays out if you are diagnosed with an illness or injury and are unable to work for a temporary or permanent amount of time.
Let's take an example: Benedict, 35, from Ontario, has just bought a house worth $150,000 with a $19,000 deposit. As his deposit is under $20,000 he has to buy mortgage insurance. However, he is not obligated to buy mortgage life insurance. As he is young and in good health he will probably get a good deal on a term life insurance plan. If he takes out a policy now and keeps up with payments he will be well protected by the time his health becomes more at risk when he gets older.