Mortgage insurance vs life insurance: What's right for me?

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Alexandre Desoutter updated on 16 January 2024

Mortgage life insurance is tailored to pay off your mortgage balance in the event of your death, providing a sense of security for your home. On the other hand, traditional life insurance offers more flexibility, with the payout available for various needs beyond the mortgage.

But what is the best choice for you? How to weigh mortgage insurance vs life insurance? Read our guide to explore the main difference between the two, their pros, cons, coverage, costs, and more.

Based on your needs, use our free comparator tool to explore the best mortgage and life insurance plans, compare, and get personalized quotes right here so you can find a plan that truly fits you best.

Mortgage insurance vs life insurance: 5 Key takeaways

  1. Mortgage Life Insurance: Pays off mortgage at death, fixed premiums.
  2. Life Insurance: Flexible payout for various needs, not mortgage-specific.
  3. Mortgage Life Pros and Cons: Guarantees mortgage payment, limited flexibility, fixed premiums.
  4. Life Insurance Pros and Cons: Versatile use, broader coverage, potentially lower premiums.
  5. Key Difference: Mortgage pays mortgage, life insurance offers flexibility.

What is mortgage life insurance vs mortgage default insurance?

In a nutshell, mortgage life insurance pays off your mortgage in case of death, while mortgage default insurance protects lenders from borrower default, often mandatory with deposits below 20%. Let's read on to find out more.

What is mortgage life insurance?

Mortgage life insurance, also known as mortgage protection insurance, serves to settle your mortgage if you pass away before fully repaying it. By purchasing premiums, you gain assurance that, in the unfortunate event of your death, the remaining mortgage balance will be paid off, allowing your heirs full ownership of your home.

In contrast to traditional life insurance, you don't have the flexibility to choose the beneficiary. The mortgage lender is the designated beneficiary, receiving the remaining mortgage balance directly from your insurer. Notably, mortgage life insurance payouts decrease over time as you pay down your mortgage, ensuring that the payout aligns with the remaining loan balance.

Some providers now offer a "level death benefit," maintaining a consistent payout even as your mortgage debt decreases below the coverage amount initially purchased.

What is mortgage default insurance?

Mortgage default insurance shields the lender in case you fail to make your mortgage payments. Typically required when your down payment is below 20%, it's a condition imposed by lenders to safeguard against the risk of missed payments or complete default.

By making a larger upfront deposit, you can potentially avoid the need for mortgage insurance when securing your home loan.

Good to know

Mortgage default insurance, or CMHC insurance, protects the lender and is not optional without a 20% downpayment. See our mortgage default insurance guide to learn more.

Before we delve into further details, you can quickly explore the best mortgage life insurance plans in Canada, compare them, and get free quotes using our free comparator below. Just click the button below and get personalized quotes in no time.

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How much does mortgage life insurance cost?

The cost of mortgage life insurance is tied to your mortgage amount. Depending on your age, premiums can vary from 10 cents to $1.65 for every $1000 in coverage.

For instance, if you buy a $300,000 condominium with a 15% ($45,000) down payment, resulting in a $255,000 mortgage, your premium is calculated based on this amount throughout the mortgage term.

Even if, after 10 years, you reduce your mortgage to $233,000, your premium remains the same. Despite the decreased mortgage amount, the coverage drops from $255,000 to $233,000.

Mortgage insurance vs mortgage life insurance: Which is best?

There are similarities between these two types of insurance in that they both, primarily, serve to protect your mortgage lender. However, mortgage insurance is likely to be mandatory if your deposit is under a certain threshold, whereas mortgage life insurance is an optional, additional layer of protection.

Mortgage insurance is simply a protection for the lender that ensures they will not lose out if you default on mortgage payments. It is simply the lender taking insurance out to cover debt repayment that is risky for them due to your low deposit.

Mortgage life insurance specifically makes sure your mortgage is paid off in the event of your death. It does not protect in case of illness or injury and the pay-out will go directly to the lender rather than to your heirs.

Mortgage life vs life insurance: What are the pros and cons?

Now that we have defined mortgage life insurance, let's see how it stakes up with life insurance.

The primary and most important difference between mortgage life insurance and term life insurance comes at the moment the policies pay out. Mortgage life insurance only protects your mortgage and only in the event of the death of the policyholder. The beneficiaries can pay off the mortgage but they are not able to use the money for anything else.

Life insurance provides beneficiaries with the freedom to use the funds for any purpose they choose. While paying off the mortgage may be a priority, traditional life insurance ensures flexibility in how the payout is utilized.

In contrast, mortgage life insurance specifically guarantees that the payout is solely dedicated to clearing the mortgage, offering a focussed financial protection for your home.

Type of InsuranceMortgage life insuranceTerm life insurance
Who is the beneficiary of the policy?
The lender. In the event of a payout, they will use the insurance to pay off the mortgage.Beneficiaries are designated at the time of purchase. They may use the money however they like, including to pay off the mortgage.
When does the coverage expire?
Your coverage will end when your mortgage is fully paid The term is chosen at the time of purchase. It is not affected by the length of your mortgage.
What happens if you change your mortgage?
Mortgage insurance cannot be transferred, therefore if you change lenders, you must reapply for insurance.Your insurance remains unchanged for the entire term specified within the policy
What happens if you die?
The coverage will pay off the balance of your mortgage. If you die and still owe $100,000, then the insurance will cover that amount.Your beneficiaries will receive the full amount of your policy.
What if I get ill and can’t work to cover the mortgage payments?
A mortgage life insurance plan will not help in this situation. Loss of income is covered by disability insurance.Disability is not covered by a life insurance plan.
How do premiums change?
The premiums will remain unchanged for the entire term of the mortgage even as you continue to pay down the mortgage.Premiums could change in renewal if your life circumstances have changed.
Mortgage life vs life insurance

If you think life insurance is the right way forward for you, use our free comparator below to explore the best life insurance plans in the market. Simply click the button below, enter very basic inputs on what you're looking for, and get over 20 quotes in no time right here.

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Advantages of mortgage life insurance

  • You can ensure the payout from mortgage life insurance is solely used to pay off your house. Opting for a policy with level premiums and death benefits guarantees that, in case of death, your mortgage will be settled, regardless of when it occurs within the coverage period.
  • If pre-existing conditions hinder traditional term life insurance eligibility, mortgage life insurance may offer an option, often without requiring a medical exam, reducing the risk of disqualification.
  • Certain providers may even offer a premium refund (return of premium) if you outlive the term of your mortgage life insurance policy.

Disadvantages of mortgage life insurance

  • Mortgage life insurance restricts your heirs' flexibility, limiting their options in unforeseen circumstances. While it ensures the mortgage is paid off, it doesn't cover additional expenses like medical bills, leaving your beneficiaries with fewer choices.
  • Compared to term life insurance, mortgage life insurance generally comes with higher premiums. Even if premiums are refunded, their value is reduced by inflation over time.

Where can I get mortgage life insurance quotes?

Once you have secured your mortgage you may be approached by companies selling mortgage life insurance. These companies are usually banks that have business relationships with lenders and will have found out about your mortgage from public records.

Instead, you can use our easy and free comparator below. Compare multiple mortgage life insurance plans, get personalized quotes, and find the perfect plan for you right here.

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How to use the mortgage life insurance calculator?

To calculate how much you could expect to pay into a mortgage life insurance policy and how much you would expect it to pay out in the event of your death, we invite you to use our mortgage life calculator tool.

By entering your age, the bank you wish to take the policy out with and whether or not you are a smoker, you will be able to make an estimate and strategize accordingly.

What are other ways to protect your mortgage?

For most Canadians, your home is your chief asset and largest investment. Of course, you want it to be secure! If you are still paying off your mortgage you might be worried that an illness or death might prevent you from completing payments which might mean your family or partner loses the house. For each risk there is a type of insurance that can give you peace of mind:

Type of insuranceHow it works
Traditional life insurance
Life insurance pays out to a person of your choice in the event you pass away unexpectedly. It will allow them to continue to pay off bills and cover daily living expenses including mortgage repayments.
Critical Illness insurance
Critical Illness insurance pays out if you are diagnosed with a severe condition that prevents you from working.
Disability insurance
Disability insurance is similar to critical illness insurance. It pays out if you are diagnosed with a condition or suffer an injury and are therefore unable to continue to work temporarily or permanently.
Mortgage protection insurance vs life, critical illness and disability insurance
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Alexandre Desoutter

Alexandre Desoutter has been working as editor-in-chief and head of press relations at HelloSafe since June 2020. A graduate of Sciences Po Grenoble, he worked as a journalist for several years in French media, and continues to collaborate as a as a contributor to several publications.