Mortgage Insurance vs. Life Insurance in Ontario: What's the Difference?

When you sign for a mortgage, your lender will often offer mortgage life insurance. It's quick to sign up for at the bank, so many homeowners say yes on the spot. But it's not your only option, and it isn't always the best one. Here's how it compares to an individual term life insurance policy.

Who gets paid?

With lender mortgage insurance, the benefit goes to the lender to pay off the mortgage. With an individual life policy, the money goes to the beneficiary you choose. They can pay off the mortgage, or use it for something more urgent, such as living costs or childcare.

Does the coverage shrink?

Mortgage insurance from a lender is usually tied to your outstanding balance. As you pay down the mortgage, the amount it would pay goes down, but the premium often doesn't. A term life policy pays the same amount throughout the term.

What if you switch lenders?

Lender coverage is usually tied to that mortgage. If you switch lenders at renewal, you may need to reapply, at an older age and possibly in different health. An individual policy stays with you no matter where your mortgage is.

When is your health checked?

Some lender policies ask only a few health questions at the start and review your medical history more closely when a claim is made. This is sometimes called post-claim underwriting. With an individual policy, underwriting is done when you apply, so you know where you stand before you need it.

Is mortgage insurance ever the right choice?

It can be. If you have health issues that make individual coverage hard to get, or you need something in place quickly, lender coverage may fill a gap. The key is to compare before you decide.

Questions to ask before you sign

1. Who receives the payout?

2. Does the coverage decrease as I pay down the mortgage?

3. What happens if I switch lenders or refinance?

4. When is my medical information reviewed?

5. How does the cost compare to a term policy for the same amount?

Bottom line: mortgage insurance protects the lender's loan. Life insurance protects your family. If you've been offered mortgage insurance, I'm happy to give you a side-by-side comparison. Call Matt at 289-880-6364.

This article is general information, not advice for your specific situation.