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?
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Mortgage Insurance |
Life Insurance |
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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. |
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Mortgage/Creditor Insurance |
Term Life Insurance |
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Lender is both the policyholder and principle beneficiary |
You are the policy owner and choose the beneficiary |
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Death benefits go to the mortgage lender |
Death benefits go to your designated beneficiary who can use the funds as needed |
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Coverage amount is typically determined by the size of your mortgage only |
Coverage amount is determined by you based on a complete needs analysis |
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Coverage decreases as you pay off your mortgage |
Coverage remains the same for the duration of policy |
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Policy ends when mortgage is paid off |
Policy in good standing remains in force for duration of policy term chosen |
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Selling your home to buy another you must purchase and qualify for a new policy |
Policy is portable and remains with you |
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If you change lenders, you must reapply and risk being declined |
Policy is portable and remains with you |
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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 |
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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 |
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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
FAQs
What is the difference between mortgage insurance and term life insurance?
Mortgage insurance, also called mortgage life or creditor insurance, is sold through the lender and pays the remaining mortgage balance directly to that lender if you die. Term life insurance is owned by you, and the death benefit goes to your chosen beneficiaries, who can use the funds for the mortgage or other needs.
Should I choose mortgage insurance or life insurance when buying a home?
Term life insurance may provide more flexibility because you choose the coverage amount, policy term, and beneficiaries. Mortgage insurance is designed only to pay the mortgage balance, while the coverage typically decreases as you repay the loan.
Does mortgage insurance stay with me if I sell my home or change lenders?
Mortgage insurance is generally tied to the specific mortgage and lender. If you sell your home or change lenders, you may need to apply for a new policy and could be declined, while an individually owned term life insurance policy is portable and remains with you.
When is the medical underwriting done for mortgage insurance versus life insurance?
With mortgage insurance, underwriting is usually completed after a claim, so a payout can potentially be declined because of health information. For term life insurance, your medical history is evaluated before the policy is issued, and an approved policy is not later cancelled because your health changes.
When do premiums start for mortgage insurance and term life insurance?
Mortgage insurance premiums typically begin before you have been approved for the policy. With term life insurance, monthly premiums generally start after the policy has been approved and issued, and preferred rates may be available for people in excellent health.
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