When you sign for a mortgage, there’s a moment when the bank asks if you’d like to add insurance. You’ve just been through the biggest purchase of your life, there’s a stack of paperwork in front of you, and saying yes feels like the responsible thing to do.
Protecting your home is absolutely the right idea. But before you check that box, it’s worth understanding what you’re actually buying, because many homeowners never get the full picture.
Three things to know about mortgage insurance from your lender
- The lender is the beneficiary. If you pass away, the money goes to the bank to pay down the mortgage. It doesn’t go to your family.
- Your coverage shrinks. As you pay down your mortgage, the amount the policy covers goes down with it.
- Your premium generally doesn’t. Premiums generally stay the same even though you owe less. Over time, you’re paying the same for less protection.
It’s also optional. Your lender needs your express consent before adding it, and they must tell you what it costs and give you the option to cancel.
How your own term life insurance is different
With a personal term policy, you own the policy and you choose who receives the money. The death benefit doesn’t decrease as your mortgage goes down, and your beneficiary can use the money however your family needs it most.
Think about what that could mean. Maybe your family decides to pay off the house. Maybe it makes more sense to keep the mortgage in place and use the money to cover daily living costs, childcare or education. With your own policy, they get to make that decision at a time when they’ll need every option they can get.
A personal policy can also stay with you if you move your mortgage to another lender or buy a different home, as long as you keep it in force.
To be fair, term insurance has trade-offs too
Term coverage ends when the term ends, and your family receives nothing after that. Some policies can be renewed, but not all, and premiums can go up at renewal. You’ll also usually need to go through an application, which may include health questions. If you have health concerns, it’s important to compare your options before you cancel anything you already have.
Please don’t cancel existing coverage until a new policy is approved and in force. You don’t want to be left with a gap.
Questions to ask before you decide
- Who receives the money if something happens to me?
- Does my coverage go down over time?
- Will my premium change, and when?
- What happens to my coverage if I switch lenders?
- Is the policy underwritten when I apply, or when I make a claim?
The bottom line
The goal isn’t just to protect the mortgage. It’s to protect the people living in the home. Whichever option you choose, you should understand exactly who it protects and how.
If you already have mortgage insurance, or you’re about to renew or buy, I’m happy to compare your options side by side. Reach out to me here or call (647) 891-9677.
This article is general information, not personal financial or insurance advice. Coverage, costs and eligibility vary by insurer, lender and your situation. Sources: Financial Consumer Agency of Canada, optional mortgage insurance products and life insurance.
