Both mortgage insurance and life term insurance essentially serve the same purpose. However, there are some important differences. Each comes with advantages and disadvantages. It’s important that consumers do their research and understand these differences before selecting a policy.

Mortgage Insurance

Mortgage insurance is a policy that protects the mortgage lender (most often a bank) in the event that the borrower (most often the homeowner) defaults on payments, dies, or is unable to meet the financial obligations of the mortgage.

Advantages

• A mortgage insurance policy will cover the amount owed on your mortgage, ensuring that family left behind will be able to pay off your home and continue to live there.

• Mortgage insurance is convenient. Typically, it’s purchased from the bank or financial institution that’s lending you the money for your mortgage, and added on to your monthly payments.

Disadvantages

• Mortgage insurance policies are designed to have a decreasing benefit over time. The benefit decreases as your mortgage loan decreases.

• The premium does not decrease over time even though your coverage decreases over time.

• The money paid out by the policy must be used to pay off the mortgage which might not be the best solution as the time. It might make more sense to use the money to pay off some other debt or expense.

• Mortgage insurance, no matter what kind, protects the lender - not you - in the event that you fall behind on your payments.

• Mortgage insurance is typically more expensive than life insurance.

• Mortgage insurance is not portable. If you switch lenders, you'll need to take out a new policy.

• You will not always be covered in the event of a claim. This type of policy uses post claim underwriting. They will investigate your medical history after a claim is made. If you have a health condition (aware of it or not) at the time of signing the papers and it is not disclosed, your claim can be denied. Therefore, even though you’ve been paying the premiums, no benefits will be paid out.

• Most Canadian’s renew their mortgage policy every 5-10 years depending on their term. The policy will need to be renewed at the same time. You may then need to pay higher premiums due to newly developed health problems or entering a new age demographic.

Term Life Insurance

Term life insurance provides coverage at a fixed rate over a limited period of time. The period of time can be 10, 20 or 30 years. Or to a specified age like 75 or 80 (depending on the term that you choose).

Advantages

• The coverage you need under one policy. Your mortgage policy and life insurance policy are both covered under once insurance policy.

• Overall, term life insurance is significantly more affordable than mortgage insurance. 

• The premiums, and the amount that your beneficiaries receive if you die, will stay the same through the life of the policy.

• Your term life insurance policy stays with you for the duration of the policy even if you sell your home, renew your mortgage, or change lenders. 

• Your beneficiary will receive the payout and can decide what to do with it. 

• Term life insurance is more portable, because it's attached to you rather than your debt. You won’t need to take out a new policy if you decide to switch lenders.

• Term life insurance provides more guarantees with your coverage.

Disadvantages

• Term insurance sometimes requires a more detailed health screening. Some term life insurance policies do require a medical exam in order to secure coverage.

• Should you need to renew for another term, you could potentially pay higher premiums depending on your age and overall health. 

Before You Decide...

Before making this important decision, speak to one of our experienced brokers. They will help you decide what is the best fit for your situation while answering any questions or concerns that you might have. 

Call us today at 1-855-475-2959, stop by one of our offices, or fill out a free quote below.