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Mortgage Life Insurance

This policy is designed to help pay off the lender for your house if you die prematurely — but it has its flaws.

Name Product Types of Insurance Coverage Range Issue Ages Medical Exam Required Province Availability
Whole Life, Term Life, Universal, No Medical
$25,000 - $5,000,000
18 - 75
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For many people, buying their first home is the biggest investment they’ll ever make. A mortgage takes years to pay off, and if something happens to you and your family can’t make the mortgage payments, they could lose the house. That’s where mortgage life insurance comes in. It’s tailored to your loan, but it has its limitations and doesn’t offer any major benefits over a regular life insurance policy.

What is mortgage life insurance?

Mortgage life insurance, also known as mortgage protection insurance, is a type of term life insurance that pays off your mortgage if you die prematurely. Your lender is the beneficiary, which means the proceeds of your policy go directly to them when you pass away. That’s the key difference between a mortgage protection policy and a traditional life insurance policy: your family doesn’t see any of the payout.

Is mortgage life insurance the same thing as mortgage loan insurance?

No. Mortgage loan insurance protects your lender if you default on your loan loan— the money isn’t paid out to you, and it won’t pay off your mortgage on a house. You may be required to purchase it by some lenders if you have a relatively small down payment (less than 20% of your home’s value).

How does mortgage protection insurance work?

Just like a regular term life policy, mortgage protection insurance lasts a set period of time. Most companies only offer terms to match standard mortgage lengths (like 10 to 30 years).

The face value of your policy is tied to the remaining balance of your mortgage. So, if you have $100,000 left on your mortgage, your policy will be worth $100,000. As your mortgage balance decreases, so will the amount of coverage you have. However, your premium will stay the same for the life of the policy.

If you die before the term is over, the death benefit will go to your lender, who will then use it to cover the rest of your mortgage.

Can you add riders to your mortgage protection policy?

Yes. I some cases you can customize your policy with the same riders that are offered with term life insurance policies. Some of helpful add-ons you may want to check for include a return of premium (ROP) rider, which refunds any premiums paid if you outlive your policy, and a waiver of premium policy, which waives your premiums if you become disabled and can’t work.

What’s the difference between mortgage insurance and traditional life insurance?

Mortgage insurance serves a single purpose: to pay off the balance on your house if you die. With traditional life insurance, the payout is passed onto your beneficiaries. They can use that money to pay off the mortgage, as well as any other debts or expenses.

If you decide to purchase a regular policy, you can opt for term life insurance or permanent life insurance.

  • Term life insurance offers coverage for a set period of time. If your top priority is making sure your beneficiaries have the money to pay off the mortgage, you could take out a policy to match your mortgage term. For example, if you have a 20-year mortgage, you might buy a 20-year term life policy worth at least as much as your mortgage.
  • Permanent life insurance lasts your entire life, and often builds cash value over time. Since they offer lifelong coverage and can become a cash asset, they tend to be more expensive than term life. There are a few permanent policies on offer, including whole life, universal life and variable life.

Key features of mortgage insurance vs. traditional life insurance

Traditional life insuranceMortgage life insurance
Who gets the money?Your chosen beneficiaryYour mortgage lender
How much coverage do I get?However much you chooseThe amount left on your mortgage
What can the money be used for?AnythingMortgage debt
Can it cover short-term disabilities?YesYes
Can it cover long-term disabilities?YesNo

What factors (aside from death) could prevent me from paying my mortgage?

There are several reasons you could default on your mortgage repayments, including:

  • A family member could become ill and require full-time home care.
  • You or your partner could get sick and be temporarily unable to work.
  • You or your partner could become disabled and be permanently unable to work.
  • You or your partner could lose your job.

Can mortgage life insurance help if one of those things happens?

Possibly, but it depends on your policy and any riders you’ve added. Some mortgage life insurance policies will continue to pay your mortgage for a short period of time if you’re sick or disabled. But most have a cap on how long the benefit will help.

Mortgage life insurance generally won’t help if you’re unemployed, but you may be able to access benefits through governmental disability benefits like Employment Insurance (EI) or Canada Pension Plan (CPP) and Quebec Pension Plan (QPP).

Can life insurance help if one of those things happens?

Yes, but you’ll need to add extra coverage options to your policy. Critical illness insurance will pay a lump sum if you’re temporarily sick and unable to work, and disability insurance can replace a percentage of your income if you’re temporarily or permanently unable to work due to a disability.

Generally, life insurance also won’t help if you’re unemployed. But you may be able to get governmental aid from something like Employment Insurance (EI).

How much does insurance cost?

This depends on the type of insurance you get.

Life insurance

Premium prices will be based on how much coverage you want and how risky you are in the eyes of the insurer. When setting your rate, your insurer will likely assess these factors:

  • Age. Younger people almost always pay less for coverage.
  • Smoking and drinking habits. Expect to pay significantly more if you’re a smoker or heavy drinker.
  • Health. You’ll pay less if you’re a healthy weight — but pre-existing conditions can drive your premiums up.
  • Hobbies. If you spend your time rock climbing, scuba diving or skydiving, you’re considered to be a higher risk.
  • Occupation. If you have a dangerous job, your premiums will be higher.
  • Gender. Women generally pay slightly less than men for the same policy.
  • Single or joint coverage. Expect to pay more if the policy covers both you and your spouse.
  • Coverage type. Adding a critical illness insurance or disability insurance rider will cost more.

Mortgage life insurance

The underwriting process for mortgage life insurance is much more straightforward. Premiums will be based on:

  • Single or joint coverage. Expect to pay more if the policy covers both you and your spouse.
  • Coverage type. A policy that includes coverage for both death and short-term disability will generally cost more.
  • Mortgage amount. Your coverage is based on how much you owe on your mortgage when you take out the policy.
  • Age. Younger people may pay less for a mortgage protection policy.

When do mortgage protection policies end?

Mortgage life insurance policies end when:

  • The policy owner’s mortgage is paid off or foreclosed.
  • The loan is canceled.
  • The mortgage protection policy is canceled.
  • The insured reaches the maximum age specified under the policy.
  • The life benefit is paid or the disability benefit is paid.

How do I compare mortgage life insurance quotes?

If you’re considering mortgage life insurance, compare policies based on:

  • Premiums. Look for a policy you can easily afford.
  • Maximum entry age. Some policies require you to be under a certain age.
  • Disability definition. For policies that cover disabilities, look at what specifically is covered — and if there’s a cap on how long you can be out of work.
  • Waiting period. Some policies won’t go into effect immediately.
  • Claim policy. The process of claiming the benefit can vary between providers, so it’s a good idea to look into how claims work. This should be displayed on the providers website.
  • Policy discounts. Some providers will offer a discount on premiums for joint policies.
  • Benefit payment. It is crucial to assess how the benefit will be paid in the event of the claim. Some providers will pay out the flat amount you insured, while others will just pay out what’s left on the mortgage.

How do I pay mortgage protection insurance premiums?

If the mortgage loan is held with the same lender that is issuing the mortgage protection insurance, your premium can be:

  • Included in the loan amount.
  • Paid month-to-month by direct debit or credit card.

Is mortgage protection insurance worth it?

Life insurance is the preferable option for many homeowners. It’s flexible, and you can choose how much coverage to buy and who you’d like the proceeds of your policy to go to when you die. On the other hand, if you have a health condition that makes it expensive or impossible to get traditional life insurance, a mortgage protection policy might be your best bet. It will ensure your loved ones won’t be burdened with mortgage repayments if you die before your time.

Bottom line

It’s a good idea to have some sort of insurance in place to handle your debts after you die. While life insurance offers more flexibility and often comes at a lower cost, mortgage life insurance can be helpful for people with pre-existing conditions who can’t qualify for a traditional life insurance policy.

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