If you’re planning to buy a home or renew your existing mortgage, your lender may offer you mortgage life insurance. Understanding what kind of coverage this option provides will help you determine if it may be a good fit for you and how you want to protect your beneficiaries in the future. In fact, 75% of Canadian households have reported that they would struggle to pay their everyday living expenses (including their mortgage) if the primary breadwinner were to pass away. If this sounds like you, then mortgage life insurance may be a convenient and simple way to protect your family’s future with coverage that will ensure they don’t have to take on the burden of a mortgage alone.
What Is Mortgage Life Insurance?
To put it simply, mortgage life insurance offers your beneficiaries a certain sum of money if you were to die. The exact amount will depend on how much coverage you have, but the insurance money is always applied to the mortgage balance so you can ensure your family is able to stay in their home, even if the primary income used to pay the mortgage is no longer there.
Mortgage life insurance typically has a 30-day “free look” policy where all premiums that have been paid can be refunded if you choose to cancel your coverage within that time frame. This means you can buy coverage right away and give yourself time to review all the documentation and speak with an advisor to make sure it’s a good fit for your needs.
Pros And Cons Of Mortgage Life Insurance
Mortgage life insurance can be a great solution when it comes to protecting your beneficiaries, but that doesn’t mean it’s the best choice for everyone. Learn more about the pros and cons of mortgage life insurance so you can have a better idea of how it compares to other options you can expect to encounter should you decide to pursue it:
Pros of mortgage life insurance
– In some cases it may be easier to qualify for than personal life insurance.
– It has an easy application process that’s simple to navigate.
– Since mortgage life insurance is group insurance, it can result in lower premiums because the risk is spread out across multiple people.
– It may free up some of the money received through other insurance policies (employer benefits, personal insurance etc.) so that money can go toward other expenses or needs instead of the mortgage.
Cons of mortgage life insurance
– The coverage ends when your mortgage is paid off, so your family won’t be able to rely on long-term financial support beyond that point.
– If you change lenders or purchase a new home, you may lose coverage and need to reapply.
– You don’t get to choose the beneficiary like you would with personal life insurance. The bank or mortgage lender gets the money and it’s used solely to pay the mortgage.
Am I Required To Get Mortgage Life Insurance?
You are never required to purchase mortgage life insurance, but you’ll usually have the option to do so through your lender or mortgage broker, if you so desire. Sometimes mortgage life insurance is confused with mortgage loan insurance, which is required if you purchase a home with less than a 20% down payment.
Difference Between Personal Life Insurance And Mortgage Life Insurance
Mortgage life insurance covers the balance of your mortgage, which naturally decreases as the mortgage is paid down. It’s typically marketed to new homeowners who may be concerned that an unexpected death or illness could see their large mortgage falling into the laps of someone they love, and that burden isn’t something they want to pass on suddenly. Mortgage life insurance coverage ends when your home is paid off, whereas a personal life insurance policy can keep providing protection for many years.
Personal life insurance isn’t tied to your home and is purchased for a term that is unrelated to the length of your mortgage. Unlike mortgage insurance, personal life insurance coverage typically remains the same over the course of your policy. This type of insurance is designed to provide your beneficiaries with money in the event of your death, but how they use the money is flexible, so they can put it toward a mortgage but they can also use it to pay down debt, pay for post-secondary education or achieving other financial goals. You may also be able to make adjustments without incurring heavy fees so if your personal situation changes over the course of time, new children, grandchildren, etc., a life insurance policy can be more easily adapted to handle these new financial realities. It’s also important to note that applying for personal life insurance typically takes longer and involves delving into your personal medical history, so the process can be a lot more complicated.
When you’re going through the process of buying a new home, you’ll likely feel inundated with many unfamiliar terms and procedures. Taking the time to understand things like mortgage life insurance and how it differs from mortgage loan insurance, will make navigating this new adventure a lot easier. The more you understand, the better position you’re in to make an informed decision about your finances and protecting your family’s future. If you’d like to learn more about mortgage life insurance, financing or how to navigate the real estate market as a new buyer, reach out to our team of experts at Rocket Mortgage.