Mortgage Insurance vs. Life Insurance: Choosing the Right Protection for Your Home

Investing in a home is a major step, and it’s natural to want to keep it secure, come what may. Learn the key differences between mortgage and life insurance to discover which may provide you with better protection. 

Breaking Down Your Options

Think of life insurance as a safety net for your family. It’s a promise that your loved ones will be financially supported, with the payout going straight to those you’ve named as beneficiaries – instead of to the bank holding your mortgage. It’s really about peace of mind for you and security for them.

Life insurance plans, like the popular term life insurance, offer what’s known as a death benefit. Essentially, this is the sum your beneficiaries get if something happens to you within a given time frame, usually 10 to 30 years. The cost of this protection, known as a premium, often starts quite low.

If the unexpected occurs and you’re covered, your beneficiaries get a tax-free sum, which they can then use to cover the mortgage or other various financial needs. It’s a flexible way to ensure they’re taken care of in many ways, not just the roof over their heads.

Mortgage Protection – Yes, But What Else?

Mortgage insurance is more of a one-track solution. If you pass away, it’ll tackle the outstanding mortgage balance, but that’s where its coverage ends. There’s no additional payout that allows for the beneficiaries to allocate toward other bills or needs; it’s a focused benefit that’s solely about settling with the mortgage lender.

A Side-by-Side Comparison

When you pit mortgage insurance against life insurance, the contrast is clear. Mortgage insurance zeroes in on your debt to the lender, with no financial benefit to your family beyond wiping the mortgage slate clean.

Life insurance, however, casts a wider safety net and allows for greater flexibility. The money your beneficiary receives can go towards any financial obligation or goal, offering a broader protection strategy. Think unpaid debts, your kids’ care and education, or simply managing the day-to-day without your income. Whatever the financial needs are of those you leave behind, life insurance allows for your loved ones to have autonomy over how to use the funds.

Considerations Before Deciding

When you’re weighing up life insurance against mortgage insurance, consider these angles:

Who Gets the Benefit?

With life insurance, your chosen loved ones receive the payout. Mortgage insurance, conversely, pays the lender directly.

What About the Benefit Amount?

Life insurance maintains a consistent coverage amount throughout the term, providing substantial value. Mortgage insurance diminishes as you pay off your loan, decreasing the protection value over time.

Can I Transfer the Policy?

Life insurance moves with you, no matter where your mortgage goes. Mortgage insurance, however, is often tied to your loan and might require a new application for each lender switch. This includes remortgaging, or selling and buying a new home.

Choosing with Flexibility in Mind

Life insurance wins on flexibility, giving your beneficiaries full reign to use the death benefit as they see fit, whether that’s taking care of the mortgage, covering other expenses, or even planning for the future.

Getting Coverage: What’s Entailed

Depending on the insurer, life insurance may require a health exam or questionnaire for coverage. Depending on your age, health, and coverage amount, life insurance can often be more cost-effective than mortgage insurance. You also have the option to lock in your premiums with term life insurance, offering more predictable costs. 

Mortgage insurance, on the other hand, may ask for detailed health information upon claiming, which may affect the outcome when you least want surprises. Premiums for mortgage credit insurance are typically based on your mortgage amount and do not decrease with your mortgage balance. Over time, the premiums paid for mortgage insurance could exceed those comparable for life insurance policies.

Let’s Talk It Through

Finding the right path for protecting your home and family is a big decision, one that benefits from a friendly, no-obligation chat with an expert. 

Our advisors are here to help you unpack the details and choose a policy that fits just right. You can connect with them through a convenient video call or meet in person at one of our offices across Ontario. Explore our mortgage and life insurance options, to set up your future on your terms.