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Life insurance is not required to qualify for your mortgage, although it is smart to consider protecting such a large asset. Lender-offered mortgage life insurance is expensive due to a limited underwriting process. A good alternative is to purchase a life insurance policy that matches the term of your mortgage. It's a cost-effective way to protect your mortgage debt in several of the ways outlined in this article.
By Jason Reynold Goveas
Insurance Consultant, LLQP
7 minimum reading
February 7, 2023
IN THIS ARTICLE
- Is mortgage insurance mandatory?
- What insurance do I need to get a mortgage in Canada?
- Should I Get Mortgage Insurance From My Lender?
- What is the best insurance to cover my mortgage?
- The benefits of life insurance as mortgage protection
When you apply for a mortgage, there are many different things you will need to prepare, such as proof of income, employment verification, and other documents. You may also be wondering if you need insurance, especially if your lender or provider has offered you group insurance.Hall.
There is a common misconception that life insurance is required to obtain a mortgage in Canada.
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Is mortgage insurance mandatory?
No, mortgage insurance is not mandatory in Canada. In some cases, you may need a specific type of insurance based on the size of your mortgage and down payment, but you don't need life insurance to get a mortgage.
Instead, many homeowners choose to buylife insuranceto ensure that your loved ones can keep the mortgage in the event of your death.
Some homeowners may be required to purchase mortgage delinquency insurance because it is a prerequisite to the specific terms of their mortgage, but this is a very different type of insurance.
Is life insurance necessary for a mortgage?
While not necessarily mandatory, the purchase termlife insuranceSecuring your mortgage is invaluable because of the peace of mind you'll get knowing your family won't lose their home if something happens to you.
What insurance do I need to get a mortgage in Canada?
Earlier we mentioned a type of insurance you may need depending on your mortgage; this type of insurance is called mortgage default insurance, commonly known asfor sure CMHCbecause it is offered by a corporation known as the Canada Mortgage and Housing Corporation.
Required when the down payment is less than 20% of your home's purchase price, which must be less than $1,000,000. You can also purchase mortgage default insurance from private mortgage insurers such as Genworth Financial Canada.
Mortgage default insurance is designed to protect banks and lenders, but not homeowners. It can seem beneficial because it allows homeowners to get a mortgage for up to 95% of the home price, often at reasonable interest rates.
However, if you miss your mortgage payments for three months for any reason, your lender will take possession of your property, sell it and file a claim with the CMHC for any shortfall. CMHC does not protect you or your family from losing your home. So what kind of insurance does this?
Should I Get Mortgage Insurance From My Lender?
mortgage insurance, often called mortgage life insurance, pays the outstanding principal balance of your mortgage (up to a certain amount) if you die.
In Canada, mortgage insurance is a protection product, usually offered by your mortgage lender.
When you acquire this protection through your creditor, the amount insured is directly related to the amount and term of your home loan. This means that you cannot choose your insured amount.
The amount of your coverage will also decrease as your mortgage balance is paid off, but yourbetterit won't change. Combined with your monthly mortgage payment, these costs can add up.
Mortgage life insurance is expensivebecause there is usually no completed signing process for theapplication. This rigorous evaluation process helps insurers determine the costs associated with taking the financial risk of your death.
When you opt for lender-provided mortgage insurance, the lender takes on more risk and, in turn, passes the costs of that risk on to you. If you are a healthy person who neversmoked cigarettes, these policies are usually more expensive than life insurance.
As mortgage life insurance is typically sold without underwriting, it can be beneficial for people who do not qualify for life insurance for whatever reason. However, more often than not, mortgage life insurance policies are generally not a good idea.
There is no flexibility with mortgage life insurance, as most insurers send the payment directly to your creditors, meaning your beneficiaries will never see your insurance earnings. With life insurance,beneficiariesthey can use their insurance payments for whatever they need.
What is the best insurance to cover my mortgage?
Life insurance is the best option for protecting your mortgage for many reasons, making it an easy choice over mortgage life insurance. Life insurance covers you for a set period of time, with terms ranging from 10 to 30 years.
When you buy life insurance formortgage protection, buying coverage for a period long enough to match the term of your mortgage (i.e. 20 or 30 years) would keep your insurance costs relatively stable. Life insurance premiums are generally cheaper than mortgage insurance, especially if you are in good health.
You can be more confident that your mortgage and your loved ones will be taken care of with life insurance.Mortgage protection through life insuranceIt offers the same security as mortgage life insurance during the riskiest years of your mortgage, with a number of other advantages that lender-provided mortgage life insurance does not.
Life insurance, once approved, is guaranteed to pay due to lifestyle and medical requirements.signing processwhich is filled out in advance to ensure you qualify. Mortgage insurance is only issued when you apply, which means there is no guarantee that the insurance will pay.
Read our full review ofThe best mortgage insurers in Canada.
The benefits of life insurance as mortgage protection
Life insurance is the most flexible option for your mortgage protection needs. While the amount of coverage you receive with mortgage life insurance is directly related to the amount of your mortgage loan, you can get much more coverage than this amount when you choose term life insurance.
Because you can choose your coverage, you can cover all of your debt, income replacement and other needs (like funeral costs) with one policy. Most mortgage life insurers only pay your lenderwhen you die, while term life insurance allows you to choose your beneficiaries, such as your loved ones or another dependent.
Like mortgage life insurance, term life insurance protects your family from having to pay your mortgage in the unfortunate event of your death. Unlike mortgage life insurance and other mortgage protection options, however, life insurance offers many additional benefits that other options simply cannot match.
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The above information is for informational purposes only and is based on PolicyAdvisor's own opinions, which are subject to change without notice. This content is not intended and should not be construed as financial or legal advice. PolicyAdvisor accepts no responsibility for the results of people who choose to act on information contained on this site. PolicyAdvisor makes every effort to include accurate and up-to-date information. The above content may not include all terms, conditions, limitations, exclusions, termination and other provisions of the described policies, some of which may be relevant to your policy selection. See actual policy documents for complete details. In case of discrepancy, the language of the current policy documents will prevail. All rights reserved.
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- Life insurance is not necessary to get a mortgage
- Some mortgages require CMHC insurance (or mortgage default insurance), depending on the home price and down payment
- Life insurance is a cost-effective and flexible way to protect your mortgage debt.
By Jason Reynold Goveas
Insurance Consultant, LLQP
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