Guide to mortgage disability insurance

This policy covers your mortgage repayments if you become disabled — but there might be better options.

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Disabilities are more common in Canada than you might think with around 22% of Canada’s population having one or more disabilities in 2017, according to Statistics Canada. Mortgage disability insurance is protection that can help you stay in your house if you’re unable to work due to a disability.

What is mortgage disability insurance?

Mortgage disability insurance is a specific type of insurance designed to cover your monthly mortgage payments if you become disabled. It can also be known as mortgage payment protection insurance, which is a policy that will pay for some or all of your monthly mortgage payments while you are disabled for a specified period of time.

It should be noted that mortgage disability insurance is technically not life insurance. It will only cover your mortgage payments if you’re disabled due to injury or illness. However, some companies may only offer this insurance option as an add-on in a broader life insurance policy.

How does it work?

Mortgage disability insurance can either be bought as a standalone policy, or as a rider on a mortgage life insurance policy. Once you are diagnosed with a disability, either temporary or permanent, your policy will start paying a portion of your mortgage payment each month.

The policy typically has a 60 day waiting period, which means you will be responsible for paying the first and second mortgage payments after your disability diagnosis. Once the policy kicks in, the insurance company will likely pay your mortgage company directly, meaning you won’t see the money but your payments will be made.

The standard length of coverage on a mortgage disability insurance plan is typically 2 years, which is considered the standard amount of time for people to either recover from a disability or find alternative ways to pay for a mortgage.

Is mortgage disability insurance worth it?

Mortgage disability insurance may be worth it if you have a high-risk occupation and no savings fund to fall back on. It offers peace of mind that if you should be seriously injured, you won’t lose your home before you get your finances back on track.

However, if you’re eligible, it’s definitely worth looking into more comprehensive disability insurance options. These policies replace a portion (usually 60% to 85%) of your monthly paycheck – not just your mortgage payment. Many private insurance companies offer disability insurance, making it a better cost value than mortgage disability insurance offered by a bank.

It comes down to your eligibility for the policies that fit your budget.

Mortgage disability insurance riders

This type of insurance is narrow and specific, which means the options for riders are limited.

Many times mortgage disability is a rider itself on a mortgage life insurance policy. Some potentially useful riders that you could inquire about before you purchase mortgage disability insurance on its own include:

  • Return of premium. Allows you to recoup the entire amount of premium you’ve paid for this policy over the course of the policy. It raises your premium during the policy, but you get that money back when the policy term expires without receiving the benefit payout.
  • Related mortgage expenses. Extends your mortgage coverage to homeowners insurance, association fees and related expenses.
  • Unemployment waiver of premium. Covers your mortgage payments while you look for new employment after involuntarily losing your job.

Pros and cons

Pros

  • Easier approval. Compared to other forms of disability insurance, it may be easier to get approved for mortgage disability insurance compared to broader disability insurance policies.
  • Protects one of your biggest assets. Your home is a big investment, and traditional life insurance applies only after you die. Whereas this policy covers your house payments if you’re disabled for an extra layer of protection.

Cons

  • Only covers one expense. This insurance doesn’t cover auto payments, student loans or credit cards or any monthly bills.
  • No flexibility. Unlike traditional disability, you have no say in how the money is used. It must be paid to your mortgage company.
  • Declining benefit. Though you’ll pay a consistent premium, as your mortgage decreases over time, so does the benefit amount. It may not make sense to keep this policy if you’re close to paying off your mortgage.
  • Doesn’t cover home equities. Mortgage disability insurance covers your mortgage payments only, not home equity or related loans.

Compare mortgage insurance companies

Name Product Types of Insurance Coverage Range Issue Ages Medical Exam Required Province Availability
 Life Insurance Through PolicyAdvisor
Life Insurance
Mortgage Protection
Disability
Critical Illness
$25,000 - $5,000,000
18 - 72 years old
No
Ontario
Policy Advisor is a digital life insurance brokerage that has partnerships with 17 insurers in Canada.

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Alternatives to mortgage disability insurance

If you’re in good health or work in a low-risk profession, look into other options that can better fit your budget and needs:

  • Short and long-term disability insurance. Standard disability insurance offers stronger coverage than a mortgage disability policy, as it replaces a portion of your monthly income and lets you decide how you spend it.
  • Traditional term life insurance policy. You might be able to add some type of disability rider to your term life policy. The benefits will likely be narrower than having a short and long term disability policy, but could provide some level of protection.
  • Mortgage life insurance. Disability policies only cover you if your disabled, which means they are best used as a rider on a mortgage life policy. This allows you to cover both disability and premature death.

Bottom line

Mortgage disability insurance is a useful protection plan that can help you keep your house if you’re disabled due to injury or illness. Unless you work in a high-risk profession, there could be better options. Before buying a mortgage disability policy, learn more about disability insurance providers.

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