Mortgage Insurance vs. Life Insurance

Posted by Kent Braaten on Monday, January 14th, 2019 at 8:45am.

Mortgage Insurance or Life Insurance?

For many Canadians buying a home is the single largest investment in their lifetime.

You’re excited and stressed – not only because of the financial commitment, but because it’s about a place and a community that you have set your heart on.  It is during this emotional time you will meet with a lender to arrange the mortgage and you will also be asked to purchase Mortgage Insurance. If you’re like many people, you may have overlooked insurance in the home buying process.

Buying a home is an exciting time! Buy ensure you are making an informed decisions about protecting your investment, and your future. So what is the difference between Mortgage Insurance and Life Insurance?

Mortgage Insurance

Life Insurance

Also known as mortgage life, or creditor insurance, it is a policy sold by the mortgage lenders (such as banks) to pay off the mortgage in case of death with policy proceeds going directly to the lender.

An individual owned policy designed to provide coverage amounts and terms for the period of time you need it the most with policy proceeds going directly to your beneficiaries.

Mortgage/Creditor Insurance

Term Life Insurance

Lender is both the policyholder and principle beneficiary

You are the policy owner and choose the beneficiary

Death benefits go to the mortgage lender

Death benefits go to your designated beneficiary who can use the funds as needed

Coverage amount is typically determined by the size of your mortgage only

Coverage amount is determined by you based on a complete needs analysis

Coverage decreases as you pay off your mortgage

Coverage remains the same for the duration of policy

Policy ends when mortgage is paid off

Policy in good standing remains in force for duration of policy term chosen

Selling your home to buy another you must purchase and qualify for a new policy

Policy is portable and remains with you

If you change lenders, you must reapply and risk being declined

Policy is portable and remains with you

Underwriting is usually done after a claim, payouts can be declined for poor health after policy is issued

Underwriting and evaluation of medical history is done prior to policy being issued and won’t be canceled later if health issues arise

Payment of monthly premiums begins before you have been approved for a policy

Monthly premiums don’t start until after you have been approved for a policy

Policy is typically based on age and mortgage, no discounts for excellent health

Preferred rates are available for individuals with excellent health

Prepare your Paperwork

Process your mortgage with ease by preparing the documentation you’ll need before sitting down with your mortgage broker.

WHAT YOU’LL NEED:

Information about the property you’re buying:
Purchase and Sale Agreement
MLS® Listing with photo
Name, address, and telephone number of your solicitor/buyer

Confirmation of your down payment:
Saving or investments statement from within the last 90 days
Sale of an existing property – a copy of the sale agreement
Gift Letter
Withdrawal from RRSP through Home Buyer’s Plan

Verification of Employment
Most recent pay slip
T4
Letter of Employment
T1 General Notice of Assessment (if self-employed)

ALREADY OWN A HOME?

Information about your existing property:
Recent mortgage statement
Current Homeowner insurance policy
Most recent property tax/bill statement
Legal description of your property (this can be found on your original purchase agreement or your property tax statement)

Other information you may need:
Current assets
Projected expenses related to the property (heating costs, condo fees, taxes)
Whether you will be using the property to generate income
Void cheque

 

 

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