If you’re renewing or refinancing an existing mortgage, or perhaps celebrating (grand)children buying a new home, it is likely that there will be mention of mortgage life insurance. Since a home is often one of the biggest assets many individuals will own, having protection — including on the mortgage — may be an important consideration. But are there alternatives?
Mortgage life insurance can be purchased by a mortgage borrower to help pay down a mortgage in the event of the borrower’s death. It is usually sold by the mortgage lender and can be a convenient option as it can be quickly obtained when arranging the mortgage. The insurance covers the balance of the mortgage only, and the benefit paid decreases as the mortgage is paid down. As such, coverage ends when the mortgage is completely paid off. (*Note that mortgage life insurance differs from mortgage loan insurance, which is required by the Canadian Mortgage and Housing Corporation if you buy a home with a down payment of less than 20 percent. This helps to protect lenders against mortgage defaults.)
It is often easy to qualify for mortgage life insurance coverage, usually through a simple application process, as it generally doesn’t involve a medical exam or related health questions. Since mortgage life insurance is group insurance, it may have the potential to result in slightly lower premiums as risk is spread over a large group of people.
Consider that personal life insurance, often through term life insurance, can also be structured to provide protection to support mortgage payments; however, it may offer additional benefits. If your family’s financial needs change over time, personal life insurance may provide greater flexibility. Unlike mortgage life insurance coverage, which generally decreases over time,* personal life insurance coverage typically doesn’t reduce unless you make changes to your policy. Most term life insurance contracts also offer a conversion privilege, so that the policy owner can convert the policy to a permanent insurance product without medical underwriting at a future date. Mortgage life insurance proceeds must be used to pay the mortgage lender, unlike proceeds from personal life insurance which can be used by the beneficiary(ies) in the manner in which they desire, including covering an existing mortgage or helping to pay for other necessary expenses.
In some cases, for those in good health, a comparable term life insurance policy may cost less than a mortgage life insurance policy with a similar amount of coverage, often due to the fact that mortgage life insurance doesn’t take health into account within the pricing. Consider, too, that while the payout from mortgage life insurance often declines as it matches the balance of the mortgage, the premiums generally stay the same. Finally, personal life insurance may offer greater consistency in providing protection as mortgage insurance policies may not be transferrable in the event of a move or refinancing.
If you own mortgage life insurance or have younger family members who are purchasing a home with a mortgage, personal life insurance may be a consideration to provide similar protection with greater flexibility. Please call for perspectives.
*Assuming the mortgage is paid down. There may be options to top up existing coverage, including adding life insurance riders to your mortgage protection policy, at additional costs.
Insurance products and services are offered by life insurance licensed advisors through Chevron Wealth Preservation Inc., a wholly owned subsidiary of Echelon Wealth Partners Inc. This material is provided for general information and is not to be construed as an offer or solicitation for the sale or purchase of life insurance products or securities mentioned herein. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please seek individual financial advice based on your personal circumstances. Please note that only Echelon Wealth Partners is a member of CIPF and regulated by IIROC; Chevron Wealth Preservation is not.
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