If you’re one of the many Canadians to have purchased a home recently, you’ve likely been asked about adding on Mortgage Protector Insurance when signing for your mortgage—and likely, the bank advisor suggested you just check ‘no’ in all the boxes.
Mortgage Protection Insurance is sold by mortgage lenders to cover the remainder of your mortgage in the event of your death. It’s similar to your personal life insurance product, but there are some key differences between the two. Understanding the difference will impact whether you decide to purchase it or not. Indeed, the question of life vs mortgage insurance has been on the minds of Canadians for decades.
The Beneficiary in personal life vs mortgage insurance
In the case of Mortgage Protection Insurance, the mortgage lender is the automatic beneficiary in the event of death. Personal life insurance allows you to a beneficiary, whereas Mortgage Protection Insurance directs all proceeds to the lender. Ultimately, considering our low interest rate environment, directing all proceeds to the lender may not be the best allocation of the monies for your beneficiaries down the road. Take into account other immediate expenses loom on the horizon for your family—things like estate taxes, burial costs, and supplemental income from the deceased spouse.
Underwriting for personal life vs mortgage insurance
Personal life insurance is a pre-underwritten contract, meaning you are either approved for the product (or not) beforehand. Mortgage Insurance is a post-underwritten product; this means that in the event of your death, once your loved ones file a claim, the underwriting process begins only then. Unfortunately, insurance companies will try to find ways not to pay you.
The Coverage amount from personal life vs mortgage insurance
The coverage for Mortgage Insurance decreases in conjunction with your mortgage balance. But the premiums, oddly enough, remain the same. This means you’ll pay the same for less of a payout. This is a key difference between personal life insurance and Mortgage Insurance, since premiums and coverage remains the same for the entire lifespan of the contract on a personal life insurance policy.
How does IP Private Wealth Help?
IP Private Wealth is a family office—a team of financial and business experts that operates as a round-table board of advisors. We work as a team to determine a risk management strategy that takes into account all your insurance needs, ensuring they work in tandem. Learn more.
Mortgage renewal affects Mortgage Insurance but not personal life insurance:
In the event that you mortgage is up for renewal and you begin rate-shopping with various institutions, changing your lender may mean that your Mortgage Protection Insurance ceases; and to make matters worse, premiums may increase along with your age when it comes time to re-signing.
Coverage is important, but the type you get is in your hands.
The bottom line: it’s important to be covered, especially when it comes down to the largest purchase of your life. But it’s important to properly allocate that coveted after-tax dollar. Most Canadians will find that term life insurance offers for more coverage for less cost, especially at a young age.
The next time you are at the bank and asked to sign for Mortgage Protection Insurance, ask yourself: Who am I trying to protect, the bank or my family? In the end, answering this question will help you determine the right insurance plan for your goals.
