What is Mortgage Insurance?

mortgage insurance cartoon
Our Perils of Mortgage Life Insurance Comic: No Laughing Matter
click the link to read the whole comic

Sounds great just lying there on paper, doesn’t it?

Really solid.

The underlying concept of mortgage insurance is that if you die or are incapacitated mortgage insurance will pay off the rest of your mortgage. But be careful: Mortgage Insurance is the most dangerous financial product out there.

Mortgage insurance is the one financial product which declines in value as you continue to pay. Therefore each year you are getting less and less value for your premium.

Why Math is Important

Renting vs. Owning

Let’s start with your house. When you take a mortgage out on your house, it’s a very bad deal to start with. You are just paying interest on the value of the house and in most cases the interest far exceeds the cost of renting the same property.

Here’s an example based on a $500,000 20 year mortgage at 6% on a $600,000 house. We’ll assume rent inflation of 4%/year:

Year 2010: Mortgage payment $3560/month. Rent: $2500.

You are leaving over $1000 in your pocket per month in ready money. That’s a lot of restaurants and vacations twelve months a year.

But let’s take it ten years later:

Year 2020: Mortgage payment $3560/month. Rental $3301.
And you have no equity in the house.

Year 2030: Mortgage payment $0. Rent: $4501.

So in most cases, buying a house is a great deal long term, even with the high mortgage payments. How does mortgage insurance compare with home ownership as an investment?

Mortgage Insurance vs. Life Insurance

On that $500,000—as a 40 year old—you would be paying about $100/month for mortgage insurance (not including disability). For 20-year level term life insurance, you would pay about $60-$65 for that much coverage (non-smoker).

Let’s go through the years again:

Year 2010: Mortgage value $500,000. Mortgage insurance: $90/month.
Year 2010: Life Insurance value $500,000. Life insurance: $60/month.

Year 2020: Mortgage value $321,000. Mortgage insurance: $90/month.
Year 2020: Life Insurance value $500,000. Life insurance: $60/month.

Year 2029: Mortgage value $41,391. Mortgage insurance: $90/month.
Year 2029: Life Insurance value $500,000. Life insurance: $60/month.

So with term life insurance you pay two-thirds as much for up to 10x as much coverage (depending on how far down the road you are).

How does that friendly banker look now? May as well paint fangs on him or her. But don’t be mad. In most cases, even mid-level loan officers have only a vague idea of how badly they are working to rip you off. What most of them know very well is that they get a nice bonus based on how many of these mortgage insurance contracts they close.

mortgage life vs individual life
Mortgage Life vs Individual Life

The Mechanics of Mortgage Insurance

So if mortgage insurance were actually sold in a fair way, it would just be a bad deal. But mortgage insurance is sold without qualifying the purchaser. After you claim, the insurance company steps in to compensate you, so that you can compensate the bank. That is, if you are lucky. Often, the bank does not really take good care to sign you up properly and the insurer may back out of the deal claiming that you (the client) have lied on the initial application form.

But wait, you say, the mortgage insurance was sold to me by my bank. Sold – yes, but backed – no. Mortgage insurance is an external financial product. Your bank will wash its hands of the affair immediately. They don’t want to know anything about it.

Don’t believe us? Think we’re just scaremongering to sell you life insurance? Think again. The CBC covered the mortgage insurance scam indepth in their fabulous Marketplace Consumer Reports program. It might be funny, but it’s not. Lives are ruined.

Here’s a highlight of what awaits you.

Trailer for CBC Marketplace In Denial: Investigating Mortgage Life Insurance

What’s hard to believe is that over 50,000 Canadians are living with mortgage insurance underwritten after death. That’s 50,000 families living at risk of ending up homeless! Furthermore mortgage insurance through your bank is owned by your bank.  The bank is beneficiary and the coverage is not portable. Meaning that if you sell your home or switch banks your coverage ends without value.  If your health as subsequently changed obtaining new coverage may be expensive or unavailable.

Tied Selling

Mortgage insurance is not required and must not be a prerequisite for qualifying for a mortgage.

That’s right, if a bank tried to force you to buy mortgage insurance (or discriminated against you if you did not buy it), your bank would be engaging in the illegal conduct of tied selling. Tied selling is explicitly forbidden by Section 459.1 of the Bank Act Canada. (Example of a bank’s tied selling prevention policy.)

Mortgage Insurance News

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  1. jagdeep sohal 02/26/2010 at 10:39 pm

    hii sir i have question that is
    how is mortgage insurance secure ur home what do they do for secure ur home

  2. LSM Insurance 02/27/2010 at 12:34 pm

    Thanks for the note Jagdeep. Mortgage insurance pays your beneficiary a tax free lump sum if you die and or become sick this money can be used to pay off your mortgage and other houshold expenses.

  3. Isabel 02/27/2010 at 10:03 pm

    Hello. i am a person with a disability and recently purchased a house. I have critical insurance but I was told I will need mortgage insurance. Do I really need it? Or is there another insurance I can purchase that will sufice. Any info greatly appreciated. Isabel.

  4. LSM Insurance 02/28/2010 at 4:21 pm

    Mortgage insurance is essentially life insurance and or disability/critical illness insurance to pay off the mortgage. Life insurance etc. can purchased from a separate from a life insurance company in lieu of mortgage insurance through a lending institution.

  5. ANGEL 03/28/2010 at 3:03 pm


    Can you help me regarding the best way to protect my home I bought Sept/1/09. Should I buy mortgage insurance from a different place then my bank where I originally mortgaged my house or should I buy a $250.000 term life insurance from some where different to cover the balance pay out apon my death. I only have $70.000 plus interest of 4.25 percent on pay out of my mortgage apon my death which is due on the first of the month, but my interest can change every 5 years. I have a 5 year renewable.

    Waiting for your reply
    Thank you

  6. LSM Insurance 03/28/2010 at 6:55 pm

    Hi Angel,

    Thanks for the note. An individual life insurance policy almost always gives you a better value than the bank’s mortgage insurance plan. Having said that make sure your first approved for new coverage before cancelling your existing mortgage insurance.

    I would also suggest taking a more holistic approach to your life insurance needs. Your mortgage is likely just one component of your life insurance needs.

    The attached calculator link to lsminsurance.ca can let you how much insurance you need – it takes into account immediate needs like mortgage protection and your income replacement needs and subtracts existing assets including any life insurance you already have.

    All the best!

  7. piyush 04/24/2010 at 12:29 pm

    hi, i would like to know that do i have to buy life insurance of mortgage insurance. i just bought house of 470000 so, pls. advise me.
    thanks ,

  8. LSM Insurance 04/24/2010 at 7:23 pm

    Thanks for the note. Some lenders may require life insurance on high ratio mortgages. Whether it is a requirement or not it is a good idea to factor your mortgage into your overall life insurance needs.

  9. sonya 05/26/2010 at 12:42 am

    We are currently paying a mortgage insurance but were told that term life insurance would be a better choice. I am 34yrs old, and my husband is 38. Both are non smokers and in generally good health. Would you please give us a quote on 250,000 (per person)term life insurance. Do we have a choice of paying higher monthly premium to cut short the number of years.
    Thank you.

  10. LSM Insurance 05/26/2010 at 9:20 am

    Sonya, thanks for the note. We are happy to help – the premiums in part will based on the length of the Term you select. We will send you a separate email now.

  11. Malek 06/14/2010 at 8:19 pm

    Hello. I recently purchased a house and have signed my mortgage with BMO. Ofcourse the mortgage (life) insurance as mentioned is through an outside company, in this case Sun Life. They gave us a “deal” that if both my wife and I (age 29 both non smokers), that the premium ~41c per $1000 of average monthly loan balance, would be less than if we were to take it separately (27c). My payments havent started yet as I have not taken possession. Given that my wife already has whole life insurance (of equal value to the mortgage), is it worth it to keep the mortgage insurance, or get life insurance for myself instead. Keep in mind that premiums increase with age, however they are also based on average monthly loan balance (which I am guessing means that premiums should decrease as I continue to pay my insurance). I am on a variable rate and will be applying extra amounts to my mortgage yearly to reduce future payments.


  12. LSM Insurance 06/15/2010 at 8:36 am

    Thanks for the note. Premiums aside individual life insurance also offers the following benefits versus mortgage insurance through a lending institution:

    1. Level Coverage
    2. Coverage is Portable
    3. You choose your beneficiary
    4. The coverage can be integrated with your other life insurance needs

  13. Mitch Reynolds 06/17/2010 at 3:48 pm

    This is an excellent article on Mortgage Insurance. Why would anyone pay an inflated premium for a declining amount of insurance!! Get your own insurance policy for a level premium for 20 or 30 years, and you can take it from bank to bank as you renegotiate your mortgage, and you can even decrease your coverage as your mortgage declines, thus reducing your premiums.

    Bottom line – get qualified advice from an insurance professional, not the banker who is a loans officer.
    Mitch Reynolds

  14. LSM Insurance 06/17/2010 at 4:10 pm

    Thanks for the note!

  15. LuCynda 09/13/2010 at 12:43 pm

    Also – many benefits are not paid out as they do no medical exams or true medical questionaires prior to approving the individual for the mortgage insurance. It is after a claim is made the insurance company takes into consideration the health records of the individual. MANY claims are denied because the company will say the person had a pre-existing condition they did not report upon application. They will deny a person for having had medical tests they did not report on the application. Like mammograms, pap tests, blood pressure checks etc.

    The CBC report is great!

    And – mortgage insurance is NOT required. As a matter a fact, it is illegal for a mortgage company to tell a person they must have mortgage insurance in order to be approved for the mortgage – it is called tied selling.

  16. LSM Insurance 09/13/2010 at 1:00 pm

    Thanks for the note – I’m glad you liked the report.

  17. Francis 05/14/2013 at 3:30 pm

    I have a bit of a long story. I was declined for life insurance last year because of my weight. I was about 150 pounds overweight at the time.

    I have since lost 75 pounds and my blood pressure is stable. I have heard if I get declined it stays on your record like a speeding ticket. What should I do Idon’t want to declined but I have a youbg family.

  18. LSM Insurance 05/14/2013 at 3:55 pm

    Thanks for the note Francis. Congratulations on your weight loss. Most insurance will count any weight loss in the last year as half i.e if you lost 60 pounds in the last 12 months they will add back 30 pounds when underwriting your build. I know this does not seem entirely fair but that is how most carriers build a buffer in their underwriting. We could submit a preliminary inquiry to see if traditional coverage is available and if there would be a rating i.e. a surplus premium charge. Some Simplified Issue – no medical tests and a limited number of health questions do not have a build question.

    We will send you a separate email now.

  19. Syed Raza 05/14/2013 at 5:58 pm

    Hi Francis,

    Just a side note to the above comment, many carriers will only ask if you have been declined the past two years and some deferred death benefit plans will not ask if you have been declined at all.


  20. Roland 05/22/2013 at 2:44 pm

    Hi There,

    How much is $300,000 Term ins. for a 40 year old. Non Insulin diabetic. No insurance now

  21. LSM Insurance 05/22/2013 at 3:52 pm

    Thanks for the note Roland. The premiums will depend on the type of Term plan – Term 10, Term 20 etc and the stability level of your diabetes. We will send you a separate email now.

  22. Kallee 06/12/2013 at 5:12 pm

    Im looking for $200,000 Mortgage Coverage. The problem is I had a Heart attack 3 years ago and I was just declined. I’m 61, can u help.

  23. LSM Insurance 06/12/2013 at 5:18 pm

    Hi Kallee, You could look into a preliminary inquiry with a carrier who has not declined you or look into Simplified Issue Plans with Industrial Alliance, Canada Protection Plan or Assumption Life. The first two have Simplified Issue Term plans for $100,000 even if you were declined in the last 2 years. But there would be a two year waiting period for non accidental deaths.

  24. Thomas 08/16/2013 at 7:27 pm

    How much is it for $440,00 Mortgage insurance me and my wife. My DOB is …. and my wife is ….. She had cancer 4 years back

  25. LSM Insurance 08/19/2013 at 1:30 pm

    Hi Thomas, The premiums will depend on your smoking status and the type of plan. Your wife may be able to qualify for a traditional policy likely with a rating i.e. an extra premium depending on the type of cancer and treatment. We will be in touch by email

  26. Rob 11/08/2013 at 9:23 am

    Can I get an immediate pay mortgage ins. plan no wait even if I was just declined. Personally I think my decline makes no sense. But am I automatically ruled out elsewhere. I don’t want to spin my wheels

  27. LSM Insurance 11/08/2013 at 9:45 am

    Hi Rob,

    You can submit another application and depending on the circumstances you may qualify for a traditional life insurance plan – we could also submit a preliminary inquiry which is not a formal application. Simplified Issue Life Insurance – no medical tests and a short series of health questions may also be an option

  28. Brian So 11/26/2013 at 3:00 pm

    Great post!
    A few things I’d like to add: The insurer does not offer guaranteed rates for mortgage insurance, so your premiums may increase down the road. Also, since the policy is not owned by you, it can be cancelled with 30 days notice, leaving you without life insurance coverage.

  29. LSM Insurance 11/26/2013 at 3:15 pm

    Good point on the policy being owned by the bank.

  30. LSM Insurance 01/03/2014 at 4:30 pm

    Promod Sharma highlights some good points on the Pitfalls of Mortgage Life Insurance in his article link to blog.riscario.com

  31. Louis 01/21/2014 at 4:36 pm

    How can switch my mortgage insurance with TD and what are the penatlies how much do you think I’ll save

  32. LSM Insurance 01/21/2014 at 4:41 pm

    Louis there should not be in penalty to cancel your mortgage insurance. You would want to make sure your new coverage was approved first.

    As for the savings with out your date of birth, smoking status etc it’s hard to say. I will send you a separate email now.

    Jim Yih a went over some interesting points on the benefits of individual life insurance versus mortgage insurance

    **When you buy mortgage insurance through the banks, the policy is attached to a specific mortgage. If you move your mortgage to another company, you may have to re-qualify for new mortgage insurance coverage through the new financial institution.

    With a personal life insurance policy, you own the policy regardless of where the mortgage is taken out. If you wish to change the coverage, you have the flexibility to make changes.

    With mortgage insurance there is basically one policy for everyone. With personal life insurance, there is opportunity and flexibility to customize these policies to your personal needs**

  33. rick 02/11/2014 at 1:40 am

    hi…..excuse my ignorance re these financial aspects but could you pls provide some info to the following:

    scenario: 63 year old single man wishes to purchase condo for 400k…….only significant debit is current mortgage on his home 128k……assets to 170k in mutuals with public service pension of 60k per annum ,,,,,,,,lifetime smoker but currently not smoking
    Q do you think i’ll qualify for a mortgage
    Q do you think i’ll qualify for mortgage insurance,,,,,,,should I get mortgage insurance or life insurance
    Q if I pass, do the benefactors |

    (my daughters), own the condo

  34. LSM Insurance 02/11/2014 at 10:13 am

    Thanks for the note Rick. Regarding if you qualify for a mortgage. I would think so but this outside my area of expertise. A mortgage broker or lending institution should be able to assist further in this area.

    If you are in good health you should qualify for mortgage insurance. But life insurance to cover the mortgage generally provides a much better value. If you name a beneficiary they would receive the money if you pass away. We are happy to help further you can contact us at 1-866-899-4849. Regards, Chantal

  35. James 03/30/2014 at 6:15 pm

    What are my options if the bank denied me for mortgage insurance. I still need the coverage and I would prefer a plan without a wiating period

  36. LSM Insurance 03/30/2014 at 6:33 pm

    You could request that bank informs you or your doctor in writing why you were declined. There is a chance you could still qualify for a traditional life insurance policy. Mortgage insurance plans do not offer sub standard rates. Life Insurance policies do and as such you could qualify for a rated policy – a policy which is issued on an immediate pay basis but has an extra premium for the extra health or lifestyle risk. You could also submit a preliminary inquiry which is not a formal application but would give you an idea which companies might approve you.

  37. Maria Teresa Fernandez de Castro 07/24/2014 at 12:24 am

    I did not know about this and feel into the trap bing coerced into a mortgage that had the condition of getting mortgage insurance with their bank. I have now asked to cancel with them and hire another company and they are saying I can’t

    Do you know what are my options?

  38. LSM Insurance 07/24/2014 at 9:30 am

    This should not be a condition of the mortgage. But it is important not to confuse this with mortgage default insurance.

  39. Art 11/18/2014 at 7:11 pm

    My husband and I took out a mortgage with …. six years ago. The mortgage went into default in 2012 but we were still making full payments on the loan during the months it wasn’t every month but we would still make payments. He became ill in 2012 and he passed away in
    2013 from he pass away from heart attack. I notify the bank that he pass away they ask me to bring in the death certificate and they gave me a claim form to take to the hospital. I ask them if they were paying off the balance of my loan which was 150,000. they said no. The mortgage was defaulted and the insurance wasn’t paid. I said to him that they were still receiving payments from me up until 2012 of December. My mortgage had indemnity, credit protection and level life insurance. I showed the guy my contract where it was included in my mortgage. He says we have no insurance coverage there. He said only the home has insurance. They paid the home insurance and not paid our life insurance. How is that? I need some answers here please.

  40. Andy Suboch 11/18/2014 at 7:13 pm

    Without looking at the mortgage documents it is impossible, in my opinion to advise as to whether you may or may not have a cause of action as against Scotiabank or any other party based on what is set out below. In many mortgage insurance policies, there is a requirement that the mortgage be in good standing and all payments be made at time of death. It seems that might not be the case below. However, a Court might be able to grant relief against forfeiture if it were just to do so. I would need to more thoroughly review all documents and meet with you before I could give you a professional opinion.

    In general there are 2 year limitation periods that might apply. If you did have a cause of action, and you did not commence legal action within 2 years of knowing or when you ought to have known that you had a cause of action, your claims, if any might be statue barred.

    I confirm until I have been retained by way of written retainer, I will not take any measures to protect any of your interests.

    If you would like a free consultation, please call Eliza at 416-815-1331 x221 to arrange for same.


    Andrew Suboch

  41. Gloria & Norm 04/14/2015 at 10:13 pm

    Hi there::

    Is there any company who can provide mortgage life/disability insurance for people over 65? Thanks.

  42. LSM Insurance 04/15/2015 at 12:20 pm

    Thanks for the note. You have quite a few options on the Life Insurance side and some on the disability insurance. We’ll be in touch soon.

  43. Jessie 08/04/2016 at 3:43 pm

    I purchase a house 3 yrs ago but for health reasons I was turn down. If I die what happens to my home do the bank take the house and sell or are my children who would be my benefitiers responsible. I have 2 term life insurance for 100,000.00 can the bank take this for the mortgage. I don’t have a will done yet but in the process of getting one done. For this term insurance I pay close to 400. Mth because of health issues I had bladder cancer but have been cancer free for 4 yrs I also have high blood pressure which I have had since I was in my thirties and has been controlled. My question is can I get a insurance for the mortgage or is it best for me to sell the house. I dnot want the bank to be able to take the life insurance that I have for my children is there something else that I can do.

  44. LSM Insurance 08/09/2016 at 9:49 am

    Thanks for the inquiry there’s a lot of variables involved and will be in touch by email

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