Mortgage life insurance vs. personal life insurance: Here’s the differences

Kevin Puckett - Dec 23, 2020
Learn about the differences and the benefits to mortgage life insurance versus personal life insurance.
Older couple reviewing documents inside their home.

When you’re looking for a mortgage, many lending institutions also offer mortgage insurance. Be sure to look carefully before you commit, because some policies may do more to protect your lender than you.

An alternative may be personal life insurance – it doesn’t insure your mortgage, it insures you. You can also plan to meet more of your family’s needs.

Let’s compare personal life insurance to the mortgages insurance offered by many lending institutions.

Personal Life insurance

Personal life insurance is an individual insurance product which pays money to your beneficiary if you die while covered under the policy. With personal life insurance the homeowner typically owns the policy. Unlike mortgage life insurance benefits, this money can be used however your beneficiary or beneficiaries see fit.

Key features:

  • You determine the amount and type of coverage your family needs
  • Your beneficiaries can choose how to use the funds, ie. Paying off a mortgage, post-secondary tuition, credit card debt, or other living expenses
  • It can be purchased for a term that is unrelated to the length of your mortgage
  • It’s not linked to your mortgage and won’t end because your mortgage is paid off, or you’ve moved it to another financial institution

Differences:

  • Coverage typically stays the same and isn’t linked to your mortgage
  • The policy is unaffected by your mortgage ending and can keep providing you and your family with protection in the years that follow
  • Applying typically takes longer and involves delving into your medical history

Personal life insurance can work for you today and also be flexible to your changing needs. You may be able to make significant adjustments to a personal life insurance policy without heavy fees. It’s possible your family’s financial situation will change as you have children (or they grow up), and personal life insurance can help you handle these new financial realities.

Mortgage life insurance

Mortgage life insurance is a group insurance product that offers coverage which you can purchase as a mortgage borrower. It’s typically marketed towards new homeowners who may be concerned that an unexpected death or illness could leave their loved ones with a large mortgage, and is designed to pay off or pay down the mortgage if you die.

The insurance money payable under the coverage is always applied to the mortgage balance. This can help your family stay in their home, even if the primary income used to make the mortgage payments is no longer there.

Key features:

  • Covers the balance of your mortgage, which decreases as the mortgage is paid down
  • Can be convenient to get at the bank when you’re arranging your mortgage with an easy application process
  • Can free up money you may get from other insurance policies, ie. Money you get through insurance from employer benefits or a personal life insurance policy could go towards utility bills or university tuition for children
  • Coverage ends when your home is paid off

Differences:

  • It’s different from mortgage loan insurance. If you buy a house with a 20% down payment, the lending institution requires you to get mortgage loan insurance to protect against the risk of default
  • May be easier to qualify for coverage than with personal life insurance
  • Can result in lower premiums because the risk is spread out over a large group of people

Mortgage life insurance usually carries a 30-day “free look” period when all premiums paid can be refunded if you cancel your coverage. This lets you buy coverage right away and have time to review the insurance certificate. It also allows you to talk with an advisor to determine what type of insurance may be best suited for your own financial situation.

Want to learn more about mortgage life insurance versus personal life insurance? Contact me today!

Source: https://www.canadalife.com/insurance/life-insurance/mortgage-insurance-vs-life-insurance.html.