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! But ensure you are making an informed decision about protecting your investment, and your future. So what is the difference between Mortgage Insurance and Life Insurance? Click here to view our side by side comparison.
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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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The lender is both the policyholder and principal 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 |
FAQs
What is the difference between mortgage insurance and life insurance in Canada?
Mortgage insurance, also called creditor or mortgage life insurance, is sold through the lender and pays the mortgage lender if you die. Life insurance is an individually owned policy that pays your chosen beneficiaries, who can use the funds as needed.
Is mortgage insurance better than term life insurance when buying a home?
It depends on your needs, but term life insurance generally gives you more control and flexibility. You choose the coverage amount and beneficiary, and the policy can remain with you if you sell your home or change lenders.
Why does mortgage insurance coverage decrease over time?
Mortgage insurance is typically tied to your outstanding mortgage balance, so the coverage decreases as you pay down the loan. With term life insurance, the coverage amount usually remains the same for the duration of the policy term you selected.
Can I keep my life insurance if I sell my Saskatchewan home or change lenders?
Yes, an individually owned life insurance policy is portable and remains with you when you sell your home or change mortgage lenders. With mortgage insurance, you may need to apply for a new policy and could risk being declined.
When is medical underwriting done for mortgage insurance versus life insurance?
For mortgage insurance, underwriting is usually completed after a claim, which means a payout can potentially be declined because of health issues that existed when the policy was issued. With term life insurance, your medical history is evaluated before the policy is issued, and approved coverage is not later canceled because your health changes.
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