Term life insurance vs mortgage insurance: What you need to know
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Discover the methodologyChoosing between term life insurance and mortgage insurance is more than just a financial decision; it's about ensuring your family's future security.
As you weigh "term life insurance vs mortgage insurance," this guide offers clarity on the differences, advantages, and considerations of each option. Our goal is to empower you with the knowledge needed to make an informed choice that aligns with your family's needs.
Use our free tool to explore the best term life insurance and mortgage insurance options and compare 100% free quotes tailormade for you right here.
Term insurance vs mortgage insurance: Key takeaways
- Term life insurance provides affordable and flexible coverage for a specified time.
- Mortgage insurance pays off your mortgage balance if you pass away during the mortgage term.
- Term insurance typically has higher premiums due to its broader coverage.
- Mortgage insurance premiums are lower.
- Consider coverage, plans, debt, and health when choosing between term & mortgage insurance.
What is term life insurance?
Term insurance is a type of life insurance that provides financial protection to your loved ones in case of your death within a specific period, called the "term" of the policy.
If you pass away during this term, your beneficiaries receive a predetermined sum of money (death benefit) to help them manage financially. Think of it as a safety net for your family if something unexpected happens to you.
Here are some key features of term insurance:
- More affordable: Unlike whole life insurance which has both insurance and investment components, term insurance only provides death benefits. This makes it generally more affordable than whole life insurance.
- Adjustable term lengths: You can choose a term length that aligns with your needs, typically ranging from 10 to 30 years or even up to 100 years in some cases.
- Affordable premiums: Term insurance often offers significant coverage for relatively low premiums, especially compared to other types of life insurance. This makes it an accessible option for individuals and families on a budget.
- No cash value: Unlike some other life insurance policies, term insurance doesn't accumulate cash value. If you outlive the term, the policy expires and you receive no payout. However, some term plans offer riders that provide additional benefits, such as critical illness coverage or waiver of premium benefits in case of disability.
If you think term life insurance could fit your needs, you must explore multiple policies and providers before buying a plan. You can do it right here using our free comparator tool below. Compare the best term life insurance plans in Canada and get free quotes in no time.
Compare the top term life insurance options today
What is mortgage life insurance?
Mortgage life insurance is a specific type of term life insurance tailored to pay off your remaining mortgage balance if you die during the term of your mortgage.
Unlike regular term life insurance, which typically benefits your designated beneficiaries with flexibility in how they use the payout, mortgage life insurance only benefits the mortgage lender.
Mortgage life insurance:
- Pays off your outstanding mortgage balance if you die within the policy term.
- Provides financial security for your loved ones by eliminating their burden of mortgage payments.
If you think mortgage life insurance could be the right choice for you, you must explore the options available in the market. You can do it right here and in a few quick steps. Use our free tool below to compare the best mortgage insurance plans in Canada and get personalized quotes tailormade to your needs and budget.
The best mortgage life insurance
Features of mortgage life insurance
- Term life policy: Coverage aligns with the remaining term of your mortgage.
- Decreasing death benefit: As your mortgage balance shrinks, so does the death benefit to match the remaining payments.
- Beneficiary: Typically the mortgage lender, not your designated beneficiaries.
- Premiums: Generally lower than regular term life insurance due to the limited scope of coverage.
Things to keep in mind:
- Doesn't provide additional financial support for your family beyond the mortgage payoff.
- Can't choose your beneficiaries or adjust the death benefit amount.
- Might be less cost-effective than a regular term life policy if you live out the full term.
Is mortgage insurance worth it in 2024?
Mortgage insurance can provide your loved ones with the security of a fully paid-off home, ensuring they have one less financial burden to worry about during a difficult time. It's a way to make sure your biggest financial commitment doesn't become a burden to your family if you're no longer around to take care of it. Read our full guide on why mortgage insurance is worth it.
Term insurance vs mortgage insurance: What is the difference?
Here's a breakdown of the key differences between term life insurance and mortgage life insurance across your requested categories:
Coverage
- Term Life: Provides a flexible death benefit chosen by you, payable to your designated beneficiaries (family, friends, etc.) regardless of cause of death.
- Mortgage Life: Only covers your outstanding mortgage balance at the time of death, with the money directly paid to the lender.
Purpose
- Term Life: Offers financial security for your loved ones, covering expenses beyond just the mortgage like living costs, education or debts.
- Mortgage Life: Solely intended to protect the lender from financial loss if you die before your mortgage is paid off.
Cost
- Term Life: Premiums are typically higher due to the flexibility and wider coverage. They depend on your age, health, chosen coverage amount, and term length.
- Mortgage Life: Premiums are generally lower because the coverage is limited to the declining mortgage balance and beneficiaries are restricted.
Benefits
- Term Life: Choose death benefit, beneficiaries, and term length. Covers various expenses beyond the mortgage. Potential cash value accumulation (depending on the policy type).
- Mortgage Life: Cost-effective option for mortgage protection. Ensures your loved ones won't inherit the mortgage debt.
Limitations
- Term Life: Coverage ends after the term expires. No payout if you outlive the term. Premiums can be substantial depending on individual factors.
- Mortgage Life: Only covers the mortgage, no additional financial support. The lender receives the payout, not your chosen beneficiaries. Premiums might be higher than expected compared to a regular term life policy if you live out the entire term.
In short, term life offers broader protection and flexibility for your loved ones' financial security, but at a potentially higher cost. Mortgage life provides peace of mind for mortgage payoff but with limited coverage and less control over the payout.
| Feature | Term Life Insurance | Mortgage Life Insurance |
|---|---|---|
| Coverage | Flexible death benefit chosen by you | Covers outstanding mortgage balance |
| Purpose | Financial security for beneficiaries | Protects lender from financial loss |
| Cost | Generally higher premiums | Generally lower premiums |
| Benefits | Flexibility, additional protection, potential cash value (depending on policy type) | Lower cost, peace of mind for mortgage payoff |
| Limitations | No payout after term expires, potentially higher cost | Limited coverage, no control over beneficiaries, potentially less cost-effective if you live out the term |
Term insurance vs mortgage insurance: What costs more?
Premiums for term life insurance are generally higher due to the broader coverage and flexible death benefit. Prices depend on your age, health, chosen coverage amount, and term length.
Mortgage life insurance premiums are typically lower because the coverage is limited to the declining mortgage balance and beneficiaries are restricted.
Here is a sample quote for a 30-year-old non-smoker, healthy, residing in BC:
For example
Term life:
- $250,000 death benefit, 10-year term: ~$20/month
- $500,000 death benefit, 20-year term: ~$40/month
Mortgage insurance:
- $250,000 mortgage, 10-year term: ~$5/month
- $500,000 mortgage, 20-year term: ~$10/month
Actual costs will vary significantly depending on individual factors and chosen policies. You can use our comparator to get personalized quotes to get the exact premiums and coverage options.
The best mortgage life insurance
Term insurance vs mortgage insurance: What are the best options?
When considering term insurance and mortgage insurance in Canada, it's essential to choose a provider that offers not only competitive rates but also reliability, comprehensive coverage, and good customer service.
Here are some reputed providers in Canada, known for their strong financial stability, competitive rates, and excellent customer service:
Term life insurance
- Manulife insurance: One of Canada's largest financial institutions offering a wide range of term life policies with flexible features and riders.
- RBC Insurance: Known for competitive rates and innovative online application processes.
- Canada Life Insurance: A renowned provider with a long history and diverse product offerings.
- Sun Life Insurance: Another established company with a reputation for reliable service and customer-centric policies.
- BMO Insurance: Offers affordable term life options with convenient online tools and resources.
Mortgage life insurance
- Canada Life: Provides both individual and group mortgage life insurance options.
- Manulife: Offers diverse mortgage life insurance plans to suit different loan amounts and terms.
- Sun Life: A popular choice for mortgage life insurance with flexible coverage and additional benefits.
- RBC Insurance: Known for competitive rates and convenient online application processes for mortgage life insurance.
- Desjardins: A prominent insurer in Quebec offering mortgage life insurance plans with various coverage options.
- Cumis Mortgage Insurance: Offers affordable mortgage life coverage for death, critical illness, disability, and loss of employment.
- Scotia Bank Mortgage Insurance: Covers up to $1,000,000 for life events and $500,000 for critical illnesses, ensuring your mortgage is managed comprehensively.
Regardless of your choice, obtaining quotes from several providers and reviewing their policies' specifics can help ensure you find the best coverage for your situation. Always consider factors like the claim process, customer service ratings, and the financial stability of the insurer.
You can explore the best mortgage life insurance plans in Canada right here using our free tool below. Get personalized quotes based on your unique needs in a quick few steps right here.
The best mortgage life insurance
Term insurance vs mortgage insurance: What to consider while choosing?
Deciding between term life and mortgage life insurance involves carefully evaluating your needs and priorities.
Here are some key factors to consider:
Your coverage needs
- Term life offers broader protection with flexible death benefits payable to your chosen beneficiaries, covering expenses beyond just the mortgage (education, living costs, debts).
- Mortgage life covers the remaining mortgage balance, benefiting the lender and providing limited financial support for your loved ones.
Your future plans
- Term life is suitable if you have dependents relying on your income or want ongoing financial protection for your family.
- Mortgage life can be a practical option if you prioritize ensuring your loved ones don't inherit the mortgage debt but have other life insurance or sufficient savings.
Some other factors
- Family situation: Do you have young children, dependent parents, or other financial responsibilities?
- Debt obligations: Consider existing debts beyond the mortgage.
- Health and lifespan: Your health and estimated lifespan can influence term life options and cost.
